# 4 - Chapter 04 The Value of Common Stocks CHAPTER 4 The...

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Chapter 04 - The Value of Common Stocks 4-1 CHAPTER 4 The Value of Common Stocks Answers to Problem Sets 3. P 0 = (5 + 110)/1.08 = \$106.48 4. r = 5/40 = .125. 5. P 0 = 10/(.08 - .05) = \$333.33. 6. By year 5, earnings will grow to \$18.23 per share. Forecasted price per share at year 4 is 18.23/.08 = \$227.91. 7. 15/.08 + PVGO = 333.33; therefore PVGO = \$145.83. 8. Z’s forecasted dividends and prices grow as follows: Calculate the expected rates of return:

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Chapter 04 - The Value of Common Stocks 4-2 From year 0 to 1: 08 . 33 . 333 ) 33 . 333 350 ( 10 From year 1 to 2: 08 . 350 ) 350 50 . 367 ( 50 . 10 From year 2 to 3: 08 . 50 . 367 ) 50 . 367 88 . 385 ( 03 . 11 Double expects 8% in each of the first 2 years. Triple expects 8% in each of the first 3 years. 9. a. False b. True. 10. PVGO = 0, and EPS 1 equals the average future earnings the firm could generate under no-growth policy.
Chapter 04 - The Value of Common Stocks 4-3 15. Expected Future Values

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4 - Chapter 04 The Value of Common Stocks CHAPTER 4 The...

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