Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / 1) Harrison Clothiers' stock currently sells for $155 a share
1) Harrison Clothiers' stock currently sells for $155 a share. It just paid a dividend of S1 a share. The dividend is expected to grow at a constant rate of 6% a year. What is the required rate of return? What stock price is expected 1 year from now? (1 point) 2. Warr Corporation just paid a dividend of $15 a share. The dividend is expected to grow 20.50% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 4 years? (1 point) 3. Fee Founders has perpetual preferred stock outstanding that sells for $195 a share and pays a dividend of $5 at the end of each year. What is the required rate of return? (1 point) | Page
4. You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of $2 a share at the end of the year and has a beta of 14.40. The risk-free rate is 19.10%, and the market risk premium is 6%. Keller currently sells for $160 a share, and its dividend is expected to grow at some constant rate g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (1 point) 5. Martell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. If current dividend is s5 and required rate of retum 28.50%, what is the value of Martell Mining's stock? (1 point)
1) Required rate of return = D1/Price per share + Growth rate
Here Growth rate = 6%
Price per share = 155 $
D1 = Dividend paid(1+g)
= 1(1+6%)
=1(1.06)
=1.06$
Thus Required rate of return = 1.06/155 + 6%
=0.0068 + 0.06
= 0.0668
i.e 6.68%
2) Statement showing dividend for 4 years
| Year | Dividend | |
| 1 | 1.5x1.205 | 1.81 |
| 2 | 1.81 x 1.205 | 2.18 |
| 3 | 2.62 x 1.205 | 2.62 |
| 4 | 2.62 x 1.05 | 2.76 |
3) Required rate of return = Dividend /Price per share
Dividend = 5$
Price per share = 195$
Thus required rate of return = 5/195
= 0.0256
i.e 2.56%
4)
Required rate of return = Risk free rate of return + beat(Market risk premium)
= 19.10% + 14.40(6%)
=19.10% + 86.4%
= 105.5%
Required rate of return = D1/Price per share + Growth rate
Here Growth rate = ?%
Price per share = 160 $
D1 = 2
Thus 105.5% = 2/160 + g
105.5% = 0.0125 + g
Thus g = 104.25%
Price of stock after 3 years = 160(1+104.25%)^3
= 160(2.0425)^3
= 160 x 8.5209
= 1363.35 $
5) Price per share = D1/Required rate of return - growth rate
Required rate of return = 28.50%
Here Growth rate =-5%
Price per share = ?
D1 = 5(1+g)
=5(1+(-5%)
= 5(1-5%)
= 5(0.95)
= 4.75$
Thus 4.75/(28.50% - (-5%)
= 4.75 / 33.5%
= 14.18 $
