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001 - UESTIONS AND PROBLEMS hemmed c H A 9 1 E n 4 7 Equity...

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Unformatted text preview: UESTIONS AND PROBLEMS hemmed c H A 9 1' E n 4 7 Equity Markets and Stock Valuation Dividend Growth Illicdei. Under what two assumptions can we use the dividend grthh' model presented 1n the chapter to determine the value of a share of stock? Comment on the reasonableness of these assumptions. Common Versus, Preferred Stock. Suppose a company has a preferred stock issue and. a common Stock issue. Both have just paid a $2 dividend. Which do you ‘ think will have a higher price, a share of the preferred or a share of the common? I' Dividend Growth Medei; Based on the dividend growth model what are the I two components of the total return on a share of stobk? Which do you think is typically larger? . _ Growth Rate; . In the context of the dividend growth model, is it true that the growth rate in dividends: and thejgro'Wth rate. in thefprice of the stock. are identical? Dividends and ._Earnihgs.- ' Is it possibie for a company to pay dividends When it has a negative net income for the year? Could this happen for longer periods? enumerate Ethics. Is it unfair or unethical for corporations to create classes of . - stock with unequal. veting rights? Voting": Rights. Some companies, Such as (Iioogle, have created classes of stock with little or no voting rights at all. Why would inVestors buy such stock? Stack Val-nation. Evaluate the following statement: Managers should not focus on the current Istock value because doing so Will lead to an overemphasis on short—term profits at the expense of long term profits-- Constant nitride-11d Growth Model: In the Constant dividend growth model what 13 the highest reasonable grOWth rate for a stock’s dividend? I .261 ' Seiec‘t problems are. available in McGraw—Hill Connect. Please see the packaging options section of the preface for more information. Stock Vaiues. - Umbak Properties just paid a dividend of $2. 53 per share on its stock. The dividends are eXpected to grow at a constant rate of 5 .4 percent per . year, indefinitely.- If investOrs require. an 10 percent return on this stock what 15 the current price? What Will the price he 1n three years? In 15 years? Stock Values. The neXt dividend payment by Lalitha ISing‘he Traders will be $2.45 per share. The dividends are anticipated to maintain a 5. 5 percent grth'h rate, forever. If the stock currently sells fer $49. 50 per share, what 1s the required return? .I Stock Values. For the company in the previous problem, what IS the. dividend yield? What IS the expected capital gains yield? ' Stock Values. 4 Zigg's Corporation will pay a $3. 85 per share dividend next year The cempany P16615563 to increase its dividend by 4 75 percent per year, indefinitely. If you require a‘ 14 percent return on your investment how much Will you pay for the company s stock today? ' ‘ ‘ Stock Vamation. Bruer, ..,-Inc is expected to maintain a constant 6. 2 percent growth rate in it's dividends; indefinitely If- the company has a dividend yield of 4. 3 percent, what is the required return on the company’ s stock? Stock Valuation. Suppose you know that a company ’s stock currently sells Ifor $65 per share and the required return. on the stock 1s 10 percent: You also know that the total return on the stock IS evenly divided between capital gains yield and Basic ' ._ (Questions 1-1 2) I ...
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