Question

The Bell Weather Co is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 31% a year for the next 4 years and then decreasing the growth rate to 3% per year. The company just paid its annual dividend in the amount of $3.30 per share. What is the current value of one share of this stock if the required rate of return is 8.80%?

-I think the answer is 144.6

Red Sun Rising just paid a dividend of $2.80 per share. The company said that it will increase the dividend by 30% and 25% over the next two years, respectively. After that, the company is expected to increase its annual dividend at 4.2%. If the required return is 11.4%, what is the stock price today?

-I think the answer is 60

The common stock of Eddie's Engines, Inc., sells for $61 per share. The stock is expected to pay a dividend of $4.10 per share next year. Eddie's has established a pattern of increasing their dividends by 5.8% annually and expects to continue doing so. What is the market rate of return on this stock?

-I think the answer is 12.52

Santa Klaus Toys just paid a dividend of $4.00 per share. The required return is 11.4% and the perpetual dividend growth rate is 3.5%. What price should this stock sell for five years from today?

-I think the answer is 62.24

New Gadgets, Inc. currently pays no dividend but is expected to pay its first annual dividend of $5.90 per share exactly 6 years from today. After that, the dividends are expected to grow at 3.4% forever. If the required return is 11.2%, what is the price of the stock today?

-I think the answer is 44.5

Answer 1

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