Foundations of Finance
Chapter 7
Assignment
Fall 2015
1. A firm
expects to increase its annual dividend by 20 percent per year for the next two
years and by 15 percent per year for the following two years. After that, the
company plans to pay a constant annual dividend of $3 a share. The last
dividend paid was $1.00 a share. What is the current value of this stock if the
required rate of return is 12 percent?
2. A
preferred stock sells for $48.20 a share and has a market return of 15.65
percent. What is the dividend amount?
3. A stock
has a market price of $46.10 and pays a $2.40 annual dividend. What is the
dividend yield?
4. A stock
has paid dividends of $1.80, $1.85, $2.00, $2.20, and $2.25 over the past five
years, respectively. What is the average capital gains yield?
5. Atlas
Home Supply has paid a constant annual dividend of $2.40 a share for the past
15 years. Yesterday, the firm announced the dividend will increase next year by
10 percent and will stay at the level through year three, after which time the
dividends will increase by 2 percent annually. The required return on this
stock is 12 percent. What is the current value per share?
7. Berkeley, Inc.
just paid an annual dividend of $2.60 per share on its stock. The dividends are
expected to grow at a constant rate of 4.5 percent per year, indefinitely. If
investors require an 11 percent return on this stock, what will the price be in
12 years?
10. Business
Services, Inc. is expected to pay its first annual dividend of $0.80 per share
three years from now. Starting in year six, the company is expected to start
increasing the dividend by 2 percent per year. What is the value of this stock
today at a required return of 12 percent?
14. For the past six
years, the price of Slate Rock stock has been increasing at a rate of 8.6
percent a year. Currently, the stock is priced at $47 a share and has a
required return of 14 percent. What is the dividend yield?
28. Shoreline Foods
pays a constant annual dividend of $1.60 a share and currently sells for $28.50
a share. What is the rate of return?
30. Taylor Tools is a
young start-up company. No dividends will be paid on the stock over the next 7
years because the firm needs to plow back its earnings to fuel growth. The
company will then pay a $9 per share dividend in year 8 and will increase the
dividend by 4 percent per year thereafter. If the required return on this stock
is 12 percent, what is the current share price?
46. Western Beef
stock is valued at $62.10 a share. The company pays a constant annual dividend
of $4.40 per share. What is the total return on this stock?
