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##### Thomas Edison State FIN 301 written assignment 4

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Question;Fin;301 written assignment 4;Chapter 11 Problem Set;Do Problems 1, 2, 3, and 5 on pages 260?261.;1. The;dividend-growth model may be used to value a stock;a) What is the value of stock;if;D0;= \$2 k=10% g=6%;b) What is the value of;this stock if the dividend is increased to \$3 and the other variables remain;constant?;c) What is the value of;this stock if the required return declines to 7.5 percent and the other;variables remain constant?;d) What is the value of;this stock if the growth rate declines to 4 percent and the other variables;remain constant?;e) What is the value of;this stock if the dividend is increased to \$2.30, the growth rate declines to 4;percent, and the required return remains 10 percent?;2. Last year Artworks;Inc. paid a dividend of \$3.50. You anticipate that the company?s growth rate is;10 percent and have required rate of return of 15 percent for this type of;equity investment. What is the maximum price you would be willing to pay for;the stock?;3.;An;investor with a required return of 14 percent for very risky investments in;common stock has analyzed three firms and must decide which, if any, to;purchase. The information is as follows;Firm A B C;Current Earnings \$2.00 \$3.20 \$7.00;Current dividend \$1.00;\$3.00 \$7.50;Expected annual growth in dividends and earnings 7% 2% -1%;Current market price \$23 \$47 \$60;a);What;is the maximum price that the investor should pay for each stock based on the;dividend-growth model?;b);If;the investor does buy stock A, what is the implied percentage return?;c);If;the appropriate P/E ratio is 12, what is the maximum price the investor should;pay for each stock? Would your answers be different if the appropriate P/E were;7?;d);What;does stock C's negative growth rate imply?;5.;Jersey;Jewel mining has a beta coefficient of 1.2. Currently the risk-free rate is 5;percent and the anticipated return on the market is 11 percent. JJM pays a;\$4.50 dividend that is growing at 6 percent annually.;a);What;is the required return for JJM?;b);Given;the required return, what is the value of the stock?;c);If;the stock is selling for \$80, what should you do?;d);If;the beta coefficient declines to 1.0 what is the new value of the stock?;e);If;the price remains \$80, what course of action should you take given the;valuation in (d)?;Chapter;14 Problem Set;Do;Problems 1 and 2 on page 304.;1);Big;Oil Inc. has a preferred stock outstanding that pays a \$9 annual dividend. If;investors' required rate of return is 13 percent, what is the market value of;the shares? If the required return declines to 11%, what is the change in the;price of the stock?;2) What should be the prices of the;following preferred stocks if comparable securities yield 7 %? Why are the valuations different?;a. MN Inc., \$8 preferred (\$100 par);b. CH Inc., \$8 preferred (\$100 par) with mandatory retirement;after 20 years

Paper#50780 | Written in 18-Jul-2015

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