Reference no: EM132894998

Question 1 - Assume Evco, Inc. has a current stock price of $47.95 and will pay a $2.10 dividend in one year; its equity cost of capital is 12%. To justify its current price, what price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year?

a) We can expect Evco stock to sell for $__________?

Question 2 - You just purchased a share of Northstar Sports for $101.35. You expect to receive a dividend of $5.15 in one year.

a) If you expect the price after the dividend is paid to be $103.18, what total return do you expect to earn over the year?

b) What do you expect to be your dividend yield?

c) What do you expect to be your capital gain rate?

Question 3 - Assume Coleco pays an annual dividend of $1.56 and has a share price of $39.00. It announces that its annual dividend will increase to $1.81. If its dividend yield is to stay the same, what should its new share price be?

a) The new share price should be $_________?

Question 4 - Anle Corporation has a current stock price of $22.24 and is expected to pay a dividend of $0.75 in one year. Its expected stock price right after paying that dividend is $24.23.

a. What is Anle's equity cost of capital?

b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain?

Question 5 - Achi Corp has preferred stock with an annual dividend of $2.91. If the required return on Achi's preferred stock is 8.4%, what is its price? (Hint: For a preferred stock, the dividend growth rate is zero.)

a) Achi's stock price will be $__________?