1. Your company has a required rate of return 7%. The company has completed a new project that is expected to grow dividends at a rate of 50% the first year and 25% the following year, after which growth should be at a constant rate of 6%. The last dividend paid was $1.00. What is the value per share of your firm's stock?
2. Boomer Products, Inc. manufactures "no-inhale" cigarettes. As their target customers age and pass on, sales of the product are expected to decline. Thus, demographics suggest that earnings and dividends will decline at a rate of 5% annually forever. The firm just paid a dividend of $4; given a required return is 10%, what is the current price of the stock?
3. Bunky's Eats recently paid $1.65 as an annual dividend. Future dividends are projected at $1.68, $1.72, $1.76, and $1.80 over the next four years, respectively. In year 5, the dividend is expected to increase by 2.5 percent annually. What is one share of this stock worth to you if you require an 11 percent rate of return on similar investments?
4. Boo Daddy is a relatively new firm that appears to be on the road to great success. The company paid their first annual dividend today in the amount of $0.15 a share. The company plans to double each annual dividend payment for the next four years. After that time, they are planning on paying a constant dividend of $2.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 10 percent?
5. The Doggy Wash pays a constant annual dividend of $1.30 per share (growth rate
(g)). How much are you willing to pay for one share if you require a 12 percent rate of return?
6. Bug Buster just paid its annual dividend of $1.25 a share. The firm recently announced that all future dividens would be increased by 3 percent annually. What is one share of this stock worth to you if you require an 11 percent rate of return?
7. Jackson Street Repair's stock currently sells for $55 per share. The market requires a 12% return on the firm's stock. If the company maintains a constant 5% growth rate in dividends, what was the most recent dividend per share paid on the stock?
8. Longhorn, Inc. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 25 percent a year for the next three years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $0.80 per share. What is the current value of one share of this stock if the required rate of return is 17 percent?
9. Hope Company's stock sells for $22 per share, its last dividend was $1.00, and its growth rate is a constant 8%. What is its required rate of return?
10. A stock is expected to pay a dividend of $2.25 at the end of the year (D1=$2.25). The dividend is expected to grow at a constant rate of 4% per year. The stock has a required rate of return of 11%. What is the expected price of the stock five years from today?