Question
In: Finance
If a preferred stock from the FIN340 Company pays $1.00 in annual dividends and the required...
- If a preferred stock from the FIN340 Company pays $1.00 in annual dividends and the required return on the preferred stock is 5.0%, what is the current value of the stock?
- A fast growing firm paid a dividend of $1.00 per share during the most recent year, The dividend is expected to increase at a rate of 20.0% per year for the next 3 years , Afterwards, a more stable 5.00% annual growth rate should be assumed - If a 10.00% discount rate is appropriate for this stock, what is its value?
- The FIN340 Company has a net profit margin of 5.00% on annual sales of $1,000,000 and the firm has 50,000 shares outstanding. If the firm's P/E ratio is 10.0X, how much is the stock currently selling for?
- You want to buy a $9,750 car and the dealer offers you a 7-year loan with an 11.95% APR and no down payment required - Assuming monthly compounding, what will the monthly payments be?
Solutions
Expert Solution
Q#1:
Value of preferred stock= D/r
Where D= dividend ($1.00) and r- rate of return (5%)
Plugging the inputs, value of preferred stock= 1/0.05= $20
Q#2:
Current price is ascertained as the present value of future dividend income. This comprise of first stage growth for 3 Years at20 % and at 5% infinitely thereafter. Price at the end of first stage = D(n+1)/(r-g2) where D(n+1) is the dividend in 1st year of second stage, g2= growth rate in that stage and r= required rate of return. This is further discounted to arrive at current price by adding the present value of dividend stream in first stage.
Current price= $30.84.
Calculation as follows:
Q#3:
Given, net profit margin of 5.00%
Annual sales = $1,000,000
Number of shares= 50,000
Firm's P/E ratio is 10.0X
EPS= Sales*NP margin/Number of shares= 1000000*5%/50000 = $1
Price= PE Ratio*EPS= 10*$1 = $10
Q#4:
Monthly payments= $171.85
Calculation as follows:
jeff jeffy answered 1 year agoRelated Solutions
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