Question

In: Finance

Please do it by type not pics. 1.Waller Co. paid a $0.153 dividend per share in...

Please do it by type not pics.

1.Waller Co. paid a $0.153 dividend per share in 2000, which grew to $0.333 in 2012. This growth is expected to continue.

What is the value of this stock at the beginning of 2013 when the required return is 15.3 percent?

2.Consider a firm that had been priced using a 12 percent growth rate and a 14 percent required return. The firm recently paid a $2.05 dividend. The firm just announced that because of a new joint venture, it will likely grow at a 12.5 percent rate.

How much should the stock price change (in dollars and percentage)?

Expert Solution

Compounded annual growth rate of divdend = ( ending value / beginning value)^1/12 - 1

Compounded annual growth rate of divdend = ( 0.333 / 0.153)^1/12 - 1

Compounded annual growth rate of divdend = 1.066955 - 1

Compounded annual growth rate of divdend = 0.066955 or 6.6955%

Stock at the beginning of 2013 = D1 / k - g

Stock at the beginning of 2013 = [0.333 ( 1 + 0.066955 ) / 0.153 - 0.066955 ]

Stock at the beginning of 2013 = 0.355296 / 0.086045

Stock at the beginning of 2013 = $4.129

2)

Stock price before the new joint venture = D1 / K - G

Stock price before the new joint venture = [2.05 ( 1 + 0.12) / 0.14 - 0.12]

Stock price before the new joint venture = 2.296 / 0.02

Stock price before the new joint venture = $114.8

Stock price after the new joint venture = [2.05 ( 1 + 0.125) / 0.14 - 0.125]

Stock price after the new joint venture = 2.30625 / 0.015

Stock price after the new joint venture = $153.75

Dollar change in stock price = 153.75 - 114.8 = $38.95

Percentage change = ( 38.95 / 114.8 ) * 100 = 33.9286%

jeff jeffy answered 2 years ago

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