Introduction to Finance

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Tutorial (8) _Stock Valuations.

▪ Details: 10 questions

▪ Duration of submission: 1 week

 Question 1 :

Consider a stock that just paid a dividend (D₀) of $5.00 per share with dividends growing at a constant 4% per year. If my required return is 13%, what is the stock worth to me?

Question 2 :

Consider a firm that just paid a dividend of $2.60. They plan to increase dividends by 5% in year one, 10% in year two, 20% in year three, 20% in year four, and then 3% per year thereafter. You feel that a 16% required return is appropriate. What is this stock worth to you?

Question 3 :

Suppose dividends for a company are projected to grow at 5 percent forever. If the discount rate is 15 percent and the current dividend is $10, what is the value of the stock?

Question 4 :

Given the following data, what should the price of the stock be?

• Required return: 10%
• Present dividend: $1
• Dividend growth rate: 5%

Question 5 :

An investor requires a return of 12 percent. A stock sells for $18, it pays a dividend of $1, and the dividends compound annually at 6 percent. What should the price of the stock be?

Question 6 :

Atlas Motors is expected to grow at a constant rate of 6% a year into the indefinite future. It recently paid a dividend of $2.25 a share. The rate of return on stocks like Atlas is about 11%. What should a share of Atlas Motors sell for today?

Question 7 :

If Zinc Co. is expected to pay cash dividends of $8 per share and the firm has a 10% required rate of return, what is the intrinsic value of the stock?

Question 8 :

The most recent annual (2006) dividend payment of Warren Industries, a rapidly growing boat manufacturer, was $1.50 per share. The firm’s financial manager expects that these dividends will increase at a 10% annual rate, g1, over the next three years. At the end of three years (the end of 2009), the firm’s mature is expected to result in a slowing of the dividend growth rate to 5% per year, g2, for the foreseeable future. The firm’s required return is 15%.

Question 9 :

The dividend of Denham Company, an established textile manufacturer, is expected to remain constant at $3 per share indefinitely. What is the value of Denham’s stock if the required return demanded by investors is 15%?

Question 10 :

Big Brothers Inc. has the following information for every investor:

• The estimated dividends for the next period – $50,000
• The required rate of return – 10%

Calculate the price of the stock.