A) Valuation of a constant growth stock - A stock is expected to pay a dividend of $0.50 at the end of the year (that is D1 = 0.50), and it should continue to grow at a constant rate of 7 percent a year. If its required return is 12 percent, what is the stock's expected price 4 years from today?
B) Cost of common equity - EPS was $6.50 in 2005, up from $4.42 in 2000. The company pays out 40 percent of its earnings as dividends, and its common stock sells for $36.
a. Calculate the past growth rate in earnings. (This is a 5 year growth period).
b. The last dividend was D0 = 0.4($6.50) = ($2.60). Calculate the next expected dividend, D1, assuming the past growth rate continues.
c. What is cost of retained earnings, rs?
C) 1 - NPV - Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and is WACC is 12 percent. What is the project's NPV?
1-2 : IRR - Refer to problem 1. What is the project's IRR?
1-3: MIRR - Refer to problem 1. What is the project's MIRR?
11-4: Payback period - Refer to Problem 1. What is the project's payback?
11-5: Discounted payback - Refer to problem 1. What is the project's discounted payback?
The solution calculates:
1) The expected price of a stock 4 years from now.
2) Cost of common equity
3) NPV, IRR, MIRR, payback period of a project