Chapter_7_Extra_problem_solution

Chapter_7_Extra_problem_solution - Extra Problem Chapter 7...

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Extra Problem Chapter 7 - Solutions #1. Do not solve this problem. You can just skip it. #2. First, determine the dividend cash flow streams D0 = 2.15 D1 = 2.15*(1+0.12) = 2.4080 D2 = 2.4080*(1+0.10) = 2.6488 D3 = 2.6488*(1+0.10) = 2.9137 P3 = 4841 . 76 04 . 0 0594 . 3 05 . 0 09 . 0 ) 05 . 0 1 ( * 9137 . 2 4 = = - + = - g r D Then, Use CF worksheet CO1 = D1 = 2.4080 FO1 = 1 CO2 = D2 = 2.6488 FO2 = 1 CO3 = D3 = 2.9137+76.4841 = 79.3978 FO3 = 1 CPT NPV @ I = 5% NPV = 65.7483 Therefore, you should pay $65.7483 for Victor’s stock. #3. DIV = 1.2 PRICE = 35.10 Therefore, DIV YLD = 0342 . 0 10 . 35 2 . 1 = = PRICE DIV (3.42%) Since YTD (year to date) change is 22.4% BEG. PRICE * (1+0.224) = CURRENT STOCK PRICE BEG. PRICE *(1.224) = 35.10 BEG. PRICE = 6765 . 28 224 . 1 10 . 35 = Therefore, beginning price was $28.6765 0 1 2 3 4 g=12% g=10% g=5% constant
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#4. g = 6% D0 = 1.05 r = 12% Therefore, stock price today is 55 . 18 $ 06 . 0 12 . 0 ) 06
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This note was uploaded on 01/29/2012 for the course FI 311 taught by Professor Booth during the Summer '06 term at Michigan State University.

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Chapter_7_Extra_problem_solution - Extra Problem Chapter 7...

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