Questions on Corporate Finance Company
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1.) A company paid a dividend of 1.80 per share but the dividend is expected to increase to 4% per year. The risk free rate is 6% and the market risk premium is 5%. If the company beta is .7, and the market is in equilibrium, what is the value of the stock?
2.) What is the company's expected price in one year?
3.) A company just paid a dividend of 2.00 per share. The company expects the coming year to be very good, and its dividend to grow by 15% over the year. After the next year, however, the company's dividend is expected to grow at a constant rate of 6.2% per year. The risk-free rate is 6% and the market risk premium is 4%. If the company's beta is 1.1, what is the current intrinsic value of the company stock? Assume the market is in equilibrium.
4.) A company is experiencing high growth because of a surge in demand for its new product. Earnings and dividends are expected to grow at 40% over the next 4 yrs, after which competition will likely reduce the growth rate in earnings and dividends to zero. The company's last dividend, was 1.25, beta is 1.2, market risk premium is 5.50 and risk free rate is 3.00. what is the current price of the common stock?
5.) A company just paid a dividend of 4.75. Dividend is expected to grow by 30% this year, 10% in year 2, and constant rate of 5% in year three and going forward. required return is 9%. What is the best estimate of the stocks current market value?
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1.)
rf=6%
MRP=5%
Beta = 0.70
Required rate of return on stock = re=rf + beta*MRP = 6%+0.70*5%=9.5%
D0=$1.80
g=4%
Value of stock = P0=D0*(1+g)/(re-g) = 1.80*(1+4%)/(9.5%-4%)=$34.04
2.)
Expected price after one year = P0*(1+g)=34.04*(1+4%)=$35.40
3.)
rf=6%
MRP=4%
Beta = 1.10
Required rate of ...
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