Reference no: EM132155379

Business Finance

(Stock Valuation)

1. Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 12% return on your equity investments?

2. The Central Heating Company has been very successful in the past four years. Over these years, it paid common stock dividend of $4 in the first year, $4.20 in the second year, $4.41 in the third year, and its most recent dividend was $4.63. The company wishes to continue this dividend indefinitely. What is the value of the company's stock if the required rate of return is 12 percent? (zero growth model)

3. The Medical Equipment Company paid $2.25 common stock dividend last year. The company's policy is to allow its dividend to grow at 5 percent per year indefinitely. What is the value of the stock if the required rate of return is 8 percent?(constant growth model)

4. Lee Hong Imports just paid a $1.00 per share annual dividend yesterday. Dividends are expected to increase by 5% annually. What is one share of this stock worth to you today if investor required rate of return is 14%?

5. The Merriweather Co. just announced that it will pay a dividend next year of $1.60 and is establishing a policy whereby the dividend will increase by 3% annually thereafter. How much will one share be worth five years from now if the required rate of return is 12%?

6. The National X Ray Company paid $2.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five and on. What is the value of the stock if the required rate of return is 8 percent?(variable growth model)