1. The last dividend paid by Klein Company was $1.00. Klein's growth rate is expected to be a constant 5% for two years, after which dividends are expected to grow at a rate of 10% forever. Klein's required rate of return on equity (ks) is 12%. What is the current price of Klein's common stock?
2. The Satellite Building Company has fallen on hard times. Its management expects to pay no dividends for the next two years. However, the dividend for Year 3, D3, will be $1.00 per share, and the dividend is expected to grow at a rate of 3% in Year 4, 6% in Year 5, and 10% in Year 6 and thereafter. If the required return for Satellite is 20%, what is the current equilibrium price of the stock?
3. DAA's stock is selling for $15 per share. The firm's income, assets, and stock price have been growing at an annual 15% rate and are expected to continue to grow at this rate for three more years. No dividends have been declared as yet, but the firm intends to declare a dividend of D3 = $2.00 at the end of the last year of its supernormal growth. After that, dividends are expected to grow at the firm's normal growth rate of 6%. The firm's required rate of return is 18%. Do you think, the stock is overvalued, undervalued, or priced just right?
4. You are considering an investment in the common stock of Cowher Corp. The stock is expected to pay a dividend of $2 per share at the end of the year (i.e., 1 = $2.0 ). The stock has a beta equal to 1.2. The risk-free rate is 6%. The market risk premium is 5%. The stock's dividend is expected to grow at some constant rage, g. The stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe the stock price will be at the end of three years? (In other words, what is P3?)
5. Suppose you are willing to pay $30 today for a share of stock that you expect to sell at the end of one year for $32. If you require an annual rate of return of 12%, what must be the amount of the annual dividend which you expect to receive at the end of Year 1?