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##### Common stock valuation) the common stock of NCP paid $1.33 in dividends last year.

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**Question**

1. Common stock valuation) the common stock of NCP paid $1.33 in dividends last year.;Dividends are expected to grow at an annual rate of 7.00 percent for an indefinite;number of years.;a;If your required rate of return is 9.40 percent, what is the value of the stock for you?;b;Should you make the investment?;2. (Common stock valuation) The common stock of NCP paid $1.42 in dividends last year.;Dividends are expected to grow at an annual rate of $8.60 percent for an indefinite;number of years.;a. If your required rate of return is 11.40 percent, what is the value of the stock for you?;b. Should you make the investment?;3. Wayne, Inc. outstanding common stock is currently selling in the market for $20.;Dividends of 2.08 per share were paid last year, return on equity is 26 percent, and its;retention rate is 26 percent.;a;What is the value of the stock to you, given a required rate of return of 17 percent?;b;Should you purchase this stock?;4. (Measuring growth) Thomas, Inc.s return on equity is 17 percent and management has;plans to retain 22 percent of earnings for investment in the company.;a;What will be the companys growth rate?;b;How would the growth rate change if management (i) increase retained earnings to 35;percent or (ii) or decrease retention to 15 percent?;5. (Measuring growth) Green Gadgets Inc. is trying to decide whether to cut its expected;dividend for next year from $6 per share to $3 per share in order to have more money to;invest in new projects. If it does not cut its dividend, Green Gadgets expected rate of;growth in dividends is 5 percent per year and the price of their common stock will be;$110 per share. However, if it cuts its dividend, the dividend growth rate is expected to;rise to 8 percent in the future. Assuming that the investors required rate of return for;Green Gadgets stock does not change what would you expect to happen to the price of;the common stock if it cuts the dividend to $32. Should Green Gadgets cut its dividend?;Support your answer as best you can.;a;What is the investors required rate of return for Green Gadgets stock?;b;Assuming that the investors required rate of return for Green Gadgets stock does not;change what would you expect to happen to the price of the common stock if it cuts the;dividend to $32.;c. Should Green Gadgets cut its dividend? Support your answer as best you can.;6. (Common stock valuation) Dubai Motros stock price was at $105 per share when it;announced that it will cut its dividend for next year from $10 per share to $6 per share;with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected;its dividends to grow at a 6 percent rate, but with the expansion, dividends are now;expected to grow at 9 percent. How do you think the announcement will affect Dubai;Metros stock price?;What is the investors required rate of return for Dubai Metros stock?

Paper#29693 | Written in 18-Jul-2015

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