just paid an annual dividend of $2.20 per share. Dividends are expected to incre
ID: 2783966 • Letter: J
Question
just paid an annual dividend of $2.20 per share. Dividends are expected to increase by 3.75% annually, what is one share of its stock worth to you today if your required rate of return is 15%? a. $19.06 b. $19.30 c. $19.56 d. $20.29 e. $20.59 The common stock of Auto Deliveries sells for $28.16 a share. The stock is expected to pay $1.35 per share annual dividend next year. The firm has established a pattern of increasing its dividends by 3% annually and you expect this to continue. What is the implied discount rate for this stock expected 8. by the market? b. c. d. e. 7.42% 7.79% 19.67% 20.14% 20.86% 9. You believe Walthers' sustainable perpetual growth rate is 5% and it can sustain a 15% ROE in the future. How much of its earnings can Walthe rs afford to payout in order to maintain its growth rate? a, 0% b. 33.33% c. 50% d. 66.67% e. 100% 10. Renew It, Inc. is preparing to pay its first dividend. It is going to pay $0.45, $0.60, and $1 a share over the next three years, respectively. After that the company has stated that the annual dividend will be $1.25 per share indefinitely. What is one share of this stock worth to you if you demand a 10.8% rate of return? a. $6.67 b. $8.21 c. $10.14 d. $11.47 e. $12.03 11. What is the net present value (NPV) of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35%. Year Cash $12,500 19,700 10,400Explanation / Answer
7)Price =D0(1+g)/(Rs-g)
= 2.20(1+.0375)/(.15-.0375)
= 2.20*1.0375/.1125
= $ 20.29
correct option is "d"
8)Discount rate = [D1/price]+ g
=[1.35/28.16]+.03
= .0479+.03
= .0779 or 7.79%
correct option is "B"
9)Growth rate =ROE*retention ratio
5 = 15*R
5/15 =r
r= .3333 or 33.33%
Payout ratio = 1-.3333= .6667 or66.67%
correct option is "D"
10)Terminal value at year 3 = D/r
= 1.25/.108
= 11.5741
Price today =[PVF10.8%,1D1]+[PVF10.8%,2*D2]+.....[PVF10.8%,3*Terminal value]
= [.90253*.45]+[.81456*.60]+[.73516*1]+[.73516*11.5741]
= .4061+ .4887+ .7352+ 8.5088
= 10.14
correct option is "c"
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