Details of this Paper

FIN Problems - Common stock valuation

Description

solution


Question

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 company?s 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 investor?s required rate of return forGreen 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 investor?s required rate of return for Green Gadgets stock?b Assuming that the investor?s 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 Motro?s 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 Metro?s stock price?What is the investor?s required rate of return for Dubai Metro?s stock?

 

Paper#48556 | Written in 18-Jul-2015

Price : $22
SiteLock