Reference no: EM132933200

Questions -

Q1. Euro Motor Corporation is expecting dividends to grow at a 10% rate for the next two years. The corporation just paid a $2 dividend and the next dividend will be paid one year from now. After two years of rapid growth dividends are expected to grow at a constant rate of 6% forever.

I. If the required return is 12%, what is the value of Euro Motor Corporation common stock today?

ii. Assume that the annual dividend grows at a constant rate of 8% indefinitely instead of the supernormal growth. How much is the stock worth?

Q2. Johnson Company just paid an annual dividend of $2.75. The next dividend will be paid one year from today. Johnson Company expects a constant growth of 6% in dividends forever. The required rate of return for this company's common stock is 12%. What is the value of one share of common stock?

Q3. National Corporation's last dividend was $3.70 and the directors expect to maintain the historic 5 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 8 percent for the next three years and the stock will then reach $33 per share. How much should you be willing to pay for the stock if you require a 15 percent return?

Q4. The National Motor Company's last dividend was $2.25 and the directors expect to maintain the historic 5 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 8 percent for the next three years and the stock will then reach $45.00 per share. How much should you be willing to pay for the stock if you require a 13 percent return?

Q5. You paid $6.50 each unit in Fijian Holdings Unit Trust a year ago. The firm paid a dividend of 50 cents per unit during the year. You sold the units for $8.30 this morning. What was your annual rate of return?

Q6. You paid $10.00 each unit in Fijian Holdings Unit Trust a year ago. You sold the units for $9.55 this morning. What was your annual rate of return?

Q7. You paid $3.50 each unit in Unit Trust of Fiji a year ago. The firm paid a dividend of 12cents per unit during the year. You sold the units for $7.45 this morning. What was your annual rate of return?

Q8. You invested in FMF Ltd a year ago and it just paid an annual dividend of $0.75. The next dividend will be paid one year from today. FMF Ltd expects a constant growth of 6% in dividends forever. The required rate of return for this company's common stock is 13%. What is the value of one share of common stock?

Q9. National Electric Company is currently paying a dividend of $0.85 per share. Investors expect this dividend to grow at a constant rate of 6% pa perpetually. If the required rate of return is 12% p.a., what price would you pay for this share?

Q10. Global Manufacturers Ltd is currently paying a dividend of $0.25 per share. Investors expect this dividend to grow at a constant rate of 7% pa perpetually. If the required rate of return is 15% p.a., what price would you pay for this share?