Assigned Application Problems Seven (1)

Assigned Application Problems Seven (1) - 1. Discuss the...

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1. Discuss the nature of stock as an investment 5. What is meant by normal growth? Contrast normal and super normal growth? How long can each last? 11. C omp are fun d a m e nt a l a n a l ysis a nd t e chn i ca l ~ a n a l ysis . W h i ch makes mo r e se n s e t o yo u ? . Dividend and Capital Gain Yields, page 361 1. P aul D a rg i s h as anal yz ed f i v e stock s an d e s t i m at e d t he di v i d e n d s t h e y w il l pa y ne x t y ea r as w e l l as t h e i r pri ce s a t th e e nd o f th e y e a r. H is p roj ect io ns a re sh o wn b e l ow . Stock Current Price Projected Dividend Projected Price A $37.50 $1 . 45 $43.00 B 24.50 .90 26.50 C 57.80 2.10 63.50 D 74 . 35 None 81.00 E 64 . 80 3.15 63.00 Comp u te th e d i v idend y i e l d , capit a l g ain s y i e ld , and t ot a l one- y e a r r e tu rn imp l ied b y Pau l ' s es t i m ates for ea ch st oc k. Dividend Yield:$1.45/$37.50 = 3.87% Capital Gains Yield: ($43.00 - $37.50)/$37.50 = 14.67% Total Yield: 3.87% + 14.67% = 18.54% Stock B Dividend Yield:$.90/$24.50 = 3.67% Capital Gains Yield: ($26.50 - $24.50)/$24.50 = 8.16% Total Yield: 3.67% + 8.16% = 11.83% Stock C Dividend Yield:$2.10/$57.80 = 3.63%
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Capital Gains Yield: ($63.50 - $57.80)/$57.80 = 9.86% Chapter 8 3.63% + 9.86% = 13.49% Total Yield: Stock D Dividend Yield:$0/$74.35 = 0.0% Capital Gains Yield: ($81.00 - $74.35)/$74.35 = 8.94% Total Yield: 8.94% Stock E Dividend Yield:$3.15/$64.80 = 4.86% Capital Gains Yield: ($63.00 – 64.80)/$64.80 = (2.78%) Total Yield: 4.86% + (2.78%) = 2.08% 2. Fr e d Tibbit s h as m a d e a d e t a il ed st ud y of t he d enim c lot h ing in dustr y . H e ' s p a r t ic u lar l y i nt ere s t ed i n a co m p a n y c al l e d De nh a r t Fas hi ons th a t m ak e s s t y li s h d e nim a pp ar e l fo r childr en a n d te ena g e r s. F re d h as d one a forec as t of D en h art ' s earni n g s a n d look e d at it s d i v ide nd pa y me nt record. He ' s come t o t he con - c lu s i on t h at t h e firm wil l p a y a div i de nd of $ 5 . 00 for the n e xt two y ear s fo ll o we d b y a y ea r of $ 6.50. F r ed ' s in v e s tm e nt p l a n is to b u y D e n har t now, h o ld it f or th ree y e ars , an d t he n s e ll. H e think s th e pri c e wi ll b e a b ou t $7 5 w h e n he se ll s . W h a
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Assigned Application Problems Seven (1) - 1. Discuss the...

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