Calculation of current price of the stock.
1) Fabu Inc., has maintained a dividend rate of $4 per share of many years. The same rate is expected to be paid in future years. If investors require a 12 percent rate of return on similar investments, determine the intrinsic value for Fabu's stock.
2) Mary Merry, a UOP graduate with Invest Inc., of Mesa, is trying to sell you a stock with a current market price of $25.00. The stock's last dividend (D) was $2.00, and earnings and dividends are expected to grow at a constant growth rate of 10 percent. If your required rate of return is 20 percent, should you buy or not buy this stock? Why?
3) Tata Laboratories's last dividend was $1.50. Its current equilibrium stock price is $15.75, and its expected growth rate is a constant 5 percent. If your required rate of return is 15 percent, what is your expected dividend yield and expected capital gains yield for the ensuring year if you bought the stock.
4) The Canning Company has been hard hit by increased competition. Analysts predict that earnings and dividends will decline at a rate of 5 percent annually into the foreseeable future. If Canning's last dividend (D) was $2.00, and investors' required rate of return is 15 percent, what will be Canning's stock price is 3 years.
5) Bollinger Inc., currently pays a dividend of $2.00 per share. Dividends are expected to grow at a rate of 12 percent per year of the next 5 years and then continue growing thereafter (indefinitely) at a rate of 6 percent per year.
Required:
What is the current value of a share of Bollinger's stock to an investor who requires a 15 per cent required rate of return.