F1515 Homework 4 - F1515 Homework 4 Tasha Smith (72)...

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F1515 Homework 4 Tasha Smith (7–2) Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? Price = $1.50 / (0.15 - 0.07) = $18.75 (7–4) Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? Rps = $5/$50 = 10% (7–5) Nonconstant Growth Valuation A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current
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F1515 Homework 4 - F1515 Homework 4 Tasha Smith (72)...

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