Solutions to Lab Problems for Chapter 07

Solutions to Lab Problems for Chapter 07 - Solutions to...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Solutions to Lab Problems for Chapter 7 29. Sections: 7.1 Equity Securities, 7.2 Preferred Share Valuation, and 7.3 Common Share Valuation: The Dividend Discount Model (DDM) Learning Objectives: 7.1 to 7.3 Level of difficulty: Difficult a. No growth g = 0, D0 = \$2, kc = 10% D18 = D0 = \$2 b. Growth: 36. Section: 7.3 Common Share Valuation: The Dividend Discount Model (DDM) Learning Objective: 7.3 Level of difficulty: Medium a. The expected dividend at the end of year 5 is \$5.00 (expect no growth during this period) b. The expected dividend at the end of year 6 c. The expected price of the stock at the end of year 5 (immediately after the year 5 dividend) d. The price of the stock today 1 We must take into account the present values of the dividends during the first 5 years plus the present value of the stock price in year 5. Note: the first 5 payments are an annuity so we can use the TVM function on the BAII+ calculator. N=5, PMT = 5.0, FV=\$63.75, I/Y = 10%, compute PV. The price of the stock today is: \$58.54 45. Section: 7.3 Common Share Valuation: The Dividend Discount Model (DDM) Learning Objective: 7.3 Level of difficulty: Medium a. Current share price of ABC: b. Current share price of XYZ: c. PVGO of ABC: d. PVGO of XYZ: 2 ...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online