Stock Valuation

| November 13, 2015

Q.1

Nofal Corporation will pay a $4.00 per share dividend next year. The company pledges to increase its dividend by 5.5 percent per year, indefinitely.

 

Required:

If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?

Q.2

Raffalovich, Inc., is expected to maintain a constant 5.45 percent growth rate in its dividends, indefinitely.

Required:

If the company has a dividend yield of 3.95 percent, what is the required return on the company’s stock?

Q.3

You’ve collected the following information from your favorite financial website.
52-Week Price


Stock (Div) Div

Yld %

PE

Ratio

Close

Price

Net

Chg

Hi Lo
79.3 10.62    Palm Coal 0.55 3.5 6 15.80 –0.24
55.81 33.42    Lake Lead Grp 1.54 3.8 10 40.43 –0.01
130.93 69.50    SIR 2.00 2.2 10 88.97 3.07
50.24 13.95    DR Dime 0.80 5.2 6 15.43 –0.26
35.00 20.74    Candy Galore 0.32 1.5 28 ?? 0.18

According to your research, the growth rate in dividends for Palm Coal for the previous 10 years has been 4.25 percent.
Required:
If investors feel this growth rate will continue, what is the required return for Palm Coal stock?

 

 

 

Q.4

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.10, but management expects to reduce the payout by 5 percent per year, indefinitely.

Required:

If you require a return of 11 percent on this stock, what will you pay for a share today?

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Assistance with Assignment 1

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