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003 - 1 a 19 20 21 22 23 77.40 CHAPTER T Negative Growth...

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Unformatted text preview: / 1 a. -. 19' 20. 21. 22. 23. 77.40 CHAPTER T- Negative Growth. Beware Securities is a mature Corniri'erCial security systems provider. The company just paid a $10.50 dividend, but management expects to - 4 __ reduce Ehe payout by} 4. 5 percent per year indefinitely. If you. reguire a 12 percent ‘ . . return on this stoekg, What will you pay for a share today? ' FFEnding the Dividend. Gontier Corporation stock currently sells for. $74. 25 per share. The ka1 requires an 11 percent return on the firm s stock. If the .Cornpany maintains a constant 5. 5 percent grthh rate in dlvrdends What Was the ._ ‘ rndst recent divrdend per. share. paid on the stoCk‘2. ‘ ' ' - - ' ' ‘ You’ We collected the. folloWing Information from year favorite finanC'ial Weh site, Use it to answer Que'Stions 1942-3 (the 52 week Hi and Lo' are the: highest and ' ' lowest stock prices Over the prewous 52 weeks) 10.43 ArchCoal 0.36 2.5 6 13.90 —0.24 55.81 33.42 LacledeGrp 1.54 3.7 .10 40.43 —0.01 130.93 69.50 IBM 2.00 2.3 10 88.97 3.07 50.24 13.95 JCPenney 0.80 5.2 6 15.43 —0.26 35.00 20.74 TootsieRoH 0.32 1.5 28 ?? 0.18 - Dividefid View. Find the quote for the Laeiede Group. Assurne- that the _ ._ dividend 1s constant What Was the highest dividend yield oyer the past year? What Was the lowest diVidend yield (men the past year? _- "Stqck Valuation. According to the 2009 Value Line [mixes-Intent Survey, ‘ the grthh rate in dividends for IBM for thenext1 five years is expected to be a 19. 5 percent Suppose IBM meets this growth rate in dividends for the next five [years and then the diVidend grthh rate fails to 5 percent indefinitely Assnme inveStOrs require an 10.5 percent return 011 IBM StoCk'. Is the stock priced4 ‘ _ Correctly? What faCtors Could affeCt your answer? _ 1 _. Stock Valuation. _ According to the 2009- Value Line Investment Survey, the growth rate in dividends for ArChCoal for the preVious 10 years has been __ 3. 5" percent If investors feel this grthh rate IWi_4-11 continue What 1s the required ’ ' return for ArchCoal StOCk‘2 _ . I Negative Growth. According to the 2009 Vaiue Line Investment Survey, the- growth rater in dividends for J CPenney for the prevrous 10 years has been —11 . percent. If investors feel- this ngWth rate Will. continue What is the required return for JCPenney stock." Dee's this. number make sense? What are sense of the _. potential reasOns for the negative growth in d1vrdends‘7 _ . _ '_ Greek Quotes, Using- the dividend yield calculate the closmg price for ToOtSie Roll on this day. The: actual closing 2009 priCe for Tootsie Roll Was $21 02 Why is 320111 closing price different? The Value Line Investment Survey projects 'a ' 'ifiquity Markets and Stock Valuation " 4 4 ' 4 percent d1v1dend grthh rate for Tootsie Roll. What 1s the required rerun: for. the. 5...; '4 stock using the d1v1dend discount model and the actual sthk price‘2 " Capital Gains" versds Income. Consider four different stoCks, 311011 Which have a required rCtnrr-l of. 18 percent and a most recent d1V1dend of; $2. 80. per share. Stocks 1111,1111 Y are expected to maintain constant growth rates in Chaitanya (Questions 24—25) dividends for the. foreseeable future of 10 percent, 0_ percent, 111111765 percent p er 1 1 .. 263 ...
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