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- Chapter 9 Problems

Brent B.

[i]. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is r_{s} = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

a

[ii]. A stock just paid a dividend of D_{0} = $1.50. The required rate of return is r_{s} = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?

e

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[iii]. A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

a. $16.28 b. $16.70 c. $17.13 d. $17.57 e. $18.01
d

[iv]. If D_{1} = $1.25, g (which is constant) = 4.7%, and P_{0} = $26.00, what is the stock’s expected dividend yield for the coming year?

d

[v]. If D_{0} = $2.25, g (which is constant) = 3.5%, and P_{0} = $50, what is the stock’s expected dividend yield for the coming year?

b

[vi]. If D_{1} = $1.50, g (which is constant) = 6.5%, and P_{0} = $56, what is the stock’s expected capital gains yield for the coming year?

a

[vii]. If D_{1} = $1.25, g (which is constant) = 5.5%, and P_{0} = $44, what is the stock’s expected total return for the coming year?

e

[viii]. If D_{0} = $1.75, g (which is constant) = 3.6%, and P_{0} = $32.00, what is the stock’s expected total return for the coming year?

e

6.65%

_{1} = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

$41.69

_{s}, is 9.00%. What is the stock's expected price 3 years from today?

$44.46

_{s}, is 11.50%. What is the stock's expected price 5 years from now?

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$2,100

$2,850,000

_{1} = $150,000, and FCF is expected to grow at a constant rate of 6.5%. If the company’s weighted average cost of capital is 11.5%, what is the value of its operations?

$115.38

$28.90

_{1} = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

$18.62

__just paid__ a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P_{0}?

$14.52

__just paid__ a dividend of D_{0} = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

$1.05

__last__ dividend, D_{0}?

$2.44

_{1}?

[xx]. Sorenson Corp.’s expected year-end dividend is D_{1} = $1.60, its required return is r_{s} = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is *?*

_{1}) is expected to be $27.50 million, and it is expected to grow at a constant rate of 7.0% a year thereafter. The company’s WACC is 10.0%, it has $125.0 million of long-term debt plus preferred stock outstanding, and there are 15.0 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock?

$43.33

_{1} = -$10 million, but it expects positive numbers thereafter, with FCF_{2} = $25 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14.0%, what is the firm’s value of operations, in millions?

[xxvi]. Kale Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, what is the Year 0 value of operations, in millions?

Free cash flow -$50 $100

[xxvii]. Ryan Enterprises forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13.0%, and the FCFs are expected to continue growing at a 5.0% rate after Year 3. What is the Year 0 value of operations, in millions?

__nominal__ (not effective) annual rate of return?

__effective__ annual (not nominal) rate of return?

_{0} = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock’s current market value?

$29.05

_{s}) is 12%. What is the best estimate of the current stock price?

_{s}) is 12.0%. What is the best estimate of the current stock price?

_{s}) is 11%, what is its current stock price?

Too big

Why no 39?

$2,789.47

Wall Inc. forecasts that it will have the free cash flows (in millions) shown below. If the weighted average cost of capital is 14% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

Free cash flow -$20.00 $48.00 $54.00

6.34%

_{4} = $1.00(1.30)^{4} = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock’s expected constant growth rate after t = 4, i.e., what is X?

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