Review problem on stock valuation and pe ratio

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Reference no: EM131786783

Question: 1. Growth Rates. The stock price of return of 10.5 percent on similar stocks. If the company plans to pay a dividend of $4.25 next year, what growth rate is expected for the company's stock price?

2. Valuing Preferred Stock. E-Eyes.com has a new issue of preferred stock it calls 20/20 preferred. The stock will pay a $20 dividend per year, but the first dividend will not be paid until 20 years from today. If you require a return of 7.1 percent on this stock, how much should you pay today?

3. Stock Valuation. Wesen Corp. will pay a dividend of $3.14 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever. If you want a return of 12 percent, how much will you pay for the stock? What if you want a return of 8 percent? What does this tell you about the relationship between the required return and the stock price?

4. Stock Valuation and PE Ratio. The Sleeping Flower Co. has earnings of $2.65 per share. The benchmark PE for the company is 18. What stock price would you consider appropriate? What if the benchmark PE were 21?

Reference no: EM131786783

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