In: Accounting
2a.
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 12 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $14 per share dividend in 13 years and will increase the dividend by 4 percent per year thereafter. |
Required: |
If the required return on this stock is 10 percent, what is the current share price? Note: find the price of the stock one year before the company starts paying a dividend, using the dividend growth model. Then find the PV of the price, using your TVM keys. (Do not round your intermediate calculations.) |
2b.
Far Side Corporation is expected to pay the following dividends over the next four years: $9, $8, $6, and $4. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. |
Required: |
If the required return on the stock is 12 percent, what is the current share price? (Do not round your intermediate calculations.) |
2c.
Marcel Co. is growing quickly. Dividends are expected to grow at a 23 percent rate for the next 3 years, with the growth rate reducing to only a constant 6 percent thereafter. |
Required: |
If the required return is 12 percent and the company just paid a $1.40 dividend, what is the current share price? Note: since the dividend at time 0 of $1.40 has just been paid, do not include it in the price at time 0. (Do not round your intermediate calculations.) |
2d.
Antiques R Us is a mature manufacturing firm. The company just paid a $12 dividend, but management expects to reduce the payout by 7 percent per year indefinitely. |
Required : |
If you require a(n) 14 percent return on this stock, what will you pay for a share today? |