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# Stock valuation

Please see the attached file.

The next dividend payment by Carroll, Inc., will be \$4.45 per share. The dividends are anticipated to maintain a 5 percent growth rate, forever. If the stock currently sells for \$43 per share, the required return of the stock is percent

The next dividend payment by Carroll, Inc., will be \$2.45 per share. The dividends are anticipated to maintain a 7 percent growth rate, forever. The stock currently sells for \$64 per share. The dividend yield is percent, and the expected capital gains yield is percent

Diamond Corporation will pay a \$3.65 per share dividend next year. The company pledges to increase its dividend by 7.8 percent per year, indefinitely. If you require a 17.3 percent return on your investment, you will pay \$ for the company's stock today.

Pearl, Inc., is expected to maintain a constant 3.6 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 3.7 percent, the required return on the company's stock is percent

Gesto, Inc., has an issue of preferred stock outstanding that pays a \$6.75 dividend every year, in perpetuity. If this issue currently sells for \$97 per share, the required return is percent
The stock price of Retro Co. is \$69. Investors require a 13 percent rate of return on similar stocks. If the company plans to pay a dividend of \$4.50 next year, the expected growth rate of the company's stock price is percent

Barnard Corp. will pay a dividend of \$3 next year. The company has stated that it will maintain a constant growth rate of 5 percent a year forever. If you want a 15 percent rate of return, the value of the stock to you today is \$ . If you want a 10 percent rate of return, the value of the stock to you today is \$ . (Round your answers to 2 decimal places. Omit the "\$" sign in your response.)
All else held constant, an increase in the required return means that the stock will sell for a price.

Antiques 'R' Us is a mature manufacturing firm. The company just paid a \$12 dividend, but management expects to reduce the payout by 7 percent per year, indefinitely. If you require a 16 percent return on this stock, you will pay \$ for a share today.

Diamond Corporation will pay a \$4.12 per share dividend next year. The company pledges to increase its dividend by 7.9 percent per year, indefinitely. If you require a 13.9 percent return on your investment, you will pay \$ for the company's stock today

Antiques 'R' Us is a mature manufacturing firm. The company just paid a \$9 dividend, but management expects to reduce the payout by 5 percent per year, indefinitely. If you require an 11 percent return on this stock, you will pay \$ for a share today.

Stock Quotes
Assume the following stock quotes appeared in a financial web site (the 52-week Hi and Lo are the highest and lowest stock prices over the previous 52 weeks).

52-Week Price
Hi Lo Stock (Div) Div
Yld% PE Ratio Close
Price Net
Chg
37.51 28.84 MSMGrp 1.42 3.90 16 36.64 0.58
32.12 26.09 PhoenixEngy 1.28 4.00 17 31.61 0.39
94.05 72.73 National Business Machines 1.20 1.30 16 91.52 0.17
82.49 52.64 TR Dime Stores .72 0.90 15 79.60 1.53
33.35 26.22 Sam's Restaurant 0.32 1.10 22 ?? 0.38

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Using the dividend yield, the closing price for Sam's Restaurant on this day was \$ . The actual closing price for Sam's Restaurant was \$28.59. A recent survey projects a 1.5 percent dividend growth rate for Sam's Restaurant. Using the dividend discount model and the actual stock price, the required return for Sam's Restaurant stock is percent.

Barnard Corp. will pay a dividend of \$3.25 next year. The company has stated that it will maintain a constant growth rate of 4 percent a year forever. If you want a 20 percent rate of return, the value of the stock to you today is \$ . If you want a 15 percent rate of return, the value of the stock to you today is \$
All else held constant, an increase in the required return means that the stock will sell for a price.

Suppose you know that a company's stock currently sells for \$60 per share and the required return on the stock is 11 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, the current dividend is \$

#### Solution Summary

The solution explains some questions in stock valuation relating to stock dividends, perpetuity, required rate of return and constant growth rate

\$2.19