Question

In: Finance

1. Hershey Foods Corp has a common stock that will pay a dividend of $11 per...

1. Hershey Foods Corp has a common stock that will pay a dividend of $11 per share in one year. If the required return is 0.21 and the growth rate of firm is 0.04, find the common stock price today. (Round to the nearest dollar.)

a. $54

b. $65

c. $89

d. $50

e. $39

2. Owens-Illinois Inc has a common stock that just paid a dividend of $4 per share. If the required return is 0.29 and the growth rate of firm is 0.02, find the common stock price today. (Round to the nearest dollar.)

a, $22.4

b. $27.4

c. None of the answers is correct.

d. $17.6

e. $15.1

3. Air Products & Chemicals Inc has a common stock that will pay a dividend of $7 per share next year. If the required return is 0.11 and the growth rate of firm is 0.02, find the common stock price today. (Round to the nearest dollar.)

a. $67.0

b. $35.0

c. $50.0

d. $134.7

e. $77.8

4. Atlas Mines has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 2.75 percent annually. The firm just paid an annual dividend of $1.67. What will the dividend be six years from now?

a. $11.05

b. $3.88

c. $9.02

d. $1.97

e. $5.92

Solutions

Expert Solution

1. Stock Price = Expected Dividend / (required return - growth rate)

= $ 11/(0.21-0.04)

= $ 64.71

= $ 65

Answer = b. $ 65

2.  Stock Price = Expected Dividend / (required return - growth rate)

= Current (1+Growth Rate) /  (required return - growth rate)

= $ 4*(1+0.02)/ (0.29-0.02)

= $ 15.1

Answer = e. $ 15.1

3. Stock Price = Expected Dividend / (required return - growth rate)

= $ 7 /(0.11-0.02)

= $ 77.78

= $ 77.8

Answer = e. $ 77.8

4. Future Value = Present Value*(1+Rate of interest)^time

= $ 1.67*(1+2.75%)^6

= $ 1.97

Answer = d. $ 1.97

jeff jeffy answered 2 years ago
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