11 Jan Suppose that a firm’s

Attempt 1

1.

A firm is expected to pay a dividend of $2.75 next year and $2.90 the following year. Financial analysts believe the stock will be at their price target of $50 in two years.

Compute the value of this stock with a required return of 12.7 percent.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

2.

Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $1.20.

What is the value of Safeco stock when the required return is 10 percent?

3.

Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 13.0 percent. LTD’s recent dividend was $1.00.

What is the value of Limited Brands stock when the required return is 15.0 percent?(Round your answer to 2 decimal places.)

4.

Kellogg Co. (K) recently earned a profit of $2.32 earnings per share and has a P/E ratio of 19.40. The dividend has been growing at a 7 percent rate over the past few years.

If this growth rate continues, what would be the stock price in six years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 17 in six years?(Round your answers to 2 decimal places.)

5.

New York Times Co. (NYT) recently earned a profit of $2.01 per share and has a P/E ratio of 19.60. The dividend has been growing at a 9.50 percent rate over the past six years.

If this growth rate continues, what would be the stock price in six years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 25 in six years?(Round your answers to 2 decimal places.)

6.

A firm recently paid a $0.80 annual dividend. The dividend is expected to increase by 13 percent in each of the next four years. In the fourth year, the stock price is expected to be $59.

If the required return for this stock is 15.50 percent, what is its current value?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

7.

Waller Co. (WAG) paid a $0.147 dividend per share in 2006, which grew to $0.315 in 2012. This growth is expected to continue.

What is the value of this stock at the beginning of 2013 when the required return is 14.7 percent?(Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.)

8.

Consider a firm that had been priced using an 11.5 percent growth rate and a 13.5 percent required return. The firm recently paid a $2.15 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.0 percent rate.

How much should the stock price change (in dollars and percentage)?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

9.

A fast-growing firm recently paid a dividend of $0.35 per share. The dividend is expected to increase at a 10 percent rate for the next three years. Afterwards, a more stable 5 percent growth rate can be assumed.

If a 6 percent discount rate is appropriate for this stock, what is its value today?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

10.

A fast-growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 13 percent growth rate can be assumed.

If a 14.5 percent discount rate is appropriate for this stock, what is its value?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

11.

Suppose that a firm’s recent earnings per share and dividend per share are $3.60 and $2.60, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 17 seems high for this growth rate. The P/E ratio is expected to fall to 13 within five years.

Compute the dividends over the next five years.(Do not round intermediate calculations. Round your final answer to 3 decimal places.)

Compute the value of this stock in five years.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Calculate the present value of these cash flows using a 10 percent discount rate.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

12.

Suppose that a firm’s recent earnings per share and dividend per share are $3.00 and $2.30, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 24 seems high for this growth rate. The P/E ratio is expected to fall to 20 within five years.

Compute the dividends over the next five years.(Do not round intermediate calculations. Round your final answer to 3 decimal places.)

Compute the value of this stock price in five years.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Calculate the present value of these cash flows using a 12 percent discount rate.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Attempt 2

1.

A firm is expected to pay a dividend of $2.75 next year and $2.90 the following year. Financial analysts believe the stock will be at their price target of $50 in two years.

Compute the value of this stock with a required return of 12.7 percent.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

2.

Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $1.20.

What is the value of Safeco stock when the required return is 10 percent?

3.

Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 13.0 percent. LTD’s recent dividend was $1.00.

What is the value of Limited Brands stock when the required return is 15.0 percent?(Round your answer to 2 decimal places.)

4.

Kellogg Co. (K) recently earned a profit of $2.32 earnings per share and has a P/E ratio of 19.40. The dividend has been growing at a 7 percent rate over the past few years.

If this growth rate continues, what would be the stock price in six years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 17 in six years?(Round your answers to 2 decimal places.)

5.

New York Times Co. (NYT) recently earned a profit of $2.01 per share and has a P/E ratio of 19.60. The dividend has been growing at a 9.50 percent rate over the past six years.

If this growth rate continues, what would be the stock price in six years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 25 in six years?(Round your answers to 2 decimal places.)

6.

A firm recently paid a $0.80 annual dividend. The dividend is expected to increase by 13 percent in each of the next four years. In the fourth year, the stock price is expected to be $59.

If the required return for this stock is 15.50 percent, what is its current value?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

7.

Waller Co. (WAG) paid a $0.147 dividend per share in 2006, which grew to $0.315 in 2012. This growth is expected to continue.

What is the value of this stock at the beginning of 2013 when the required return is 14.7 percent?(Round the growth rate, g, to 4 decimal places. Round your final answer to 2 decimal places.)

8.

Consider a firm that had been priced using an 11.5 percent growth rate and a 13.5 percent required return. The firm recently paid a $2.15 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 12.0 percent rate.

How much should the stock price change (in dollars and percentage)?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

9.

A fast-growing firm recently paid a dividend of $0.35 per share. The dividend is expected to increase at a 10 percent rate for the next three years. Afterwards, a more stable 5 percent growth rate can be assumed.

If a 6 percent discount rate is appropriate for this stock, what is its value today?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

10.

A fast-growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 13 percent growth rate can be assumed.

If a 14.5 percent discount rate is appropriate for this stock, what is its value?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

11.

Suppose that a firm’s recent earnings per share and dividend per share are $3.60 and $2.60, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 17 seems high for this growth rate. The P/E ratio is expected to fall to 13 within five years.

Compute the dividends over the next five years.(Do not round intermediate calculations. Round your final answer to 3 decimal places.)

Compute the value of this stock in five years.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Calculate the present value of these cash flows using a 10 percent discount rate.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

12.

Suppose that a firm’s recent earnings per share and dividend per share are $3.00 and $2.30, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 24 seems high for this growth rate. The P/E ratio is expected to fall to 20 within five years.

Compute the dividends over the next five years.(Do not round intermediate calculations. Round your final answer to 3 decimal places.)

Compute the value of this stock price in five years.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Calculate the present value of these cash flows using a 12 percent discount rate.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)