50. Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to great success. The company paid its first annual dividend yesterday in the amount of $.28 a share. The company plans to double each annual dividend payment for the next three years. After that time, it is planning on paying a constant $1.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 11.5%?
A. $9.41B. $11.40C. $11.46D. $11.93E.$12.43
Dividends for the next three years are $.56, $1.12, and $2.24.
Difficulty level: Challenge
Topic: DIFFERENTIAL GROWTH DIVIDENDS
Type: PROBLEMS
51. BC ‘n D just paid its annual dividend of $.60 a share. The projected dividends for the next five years are $.30, $.50, $.75, $1.00, and $1.20, respectively. After that time, the dividends will be held constant at $1.40. What is this stock worth today at a 6% discount rate?
Difficulty level: Challenge
Topic: DIFFERENTIAL GROWTH DIVIDENDS
Type: PROBLEMS
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Chapter 09 - Stock Valuation
52. Beaksley, Inc. is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year. Five years from now, the company is repurchasing all of the outstanding shares at a price of $50 a share. At an 8% rate of return, what is this stock worth today?
Difficulty level: Challenge
Topic: DIFFERENTIAL GROWTH DIVIDENDS
Type: PROBLEMS
53. Last week, Railway Cabooses paid its annual dividend of $1.20 per share. The company has been reducing the dividends by 10% each year. How much are you willing to pay to purchase stock in this company if your required rate of return is 14%?
Difficulty level: Medium
Topic: NEGATIVE GROWTH
Type: PROBLEMS
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Chapter 09 - Stock Valuation
54. Nu-Tek, Inc. is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result it is going to reduce its annual dividend by 10% a year for the next three years. After that, it will maintain a constant dividend of $.70 a share. Last month, the company paid $1.80 per share. What is the value of this stock if the required rate of return is 13%?
A. $6.79B.$7.22C. $8.22D. $8.87E. $9.01
Difficulty level: Challenge
Topic: NEGATIVE GROWTH
Type: PROBLEMS
55. The Double Dip Co. is expecting its ice cream sales to decline due to the increased interest in healthy eating. Thus, the company has announced that it will be reducing its annual dividend by 5% a year for the next two years. After that, it will maintain a constant dividend of $1 a share. Two weeks ago, the company paid a dividend of $1.40 per share. What is this stock worth if you require a 9% rate of return?
Difficulty level: Challenge
Topic: NEGATIVE GROWTH
Type: PROBLEMS
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Chapter 09 - Stock Valuation