1. Bill is expected to pay a $0.50 dividend per share next year (D1= $0.50). The dividend is expected to grow at a constant rate of 8% a year. The required rate of return on the stock is 15%. What is the stock's price? A. $6.86 B. $7.01 C. $7.14 D. $7.71 E. $7.89
2. Investors require a return of 16.8% per year to hold a stock. The stock currently pays a dividend of $2 (D0) and the dividend grows at a rate of 20% for the first 3 periods. After 3 years, the dividends are expected to grow forever at a constant rate of 8.0% per year. What is the stock’s intrinsic value per share? A. $34.21 B. $36.72 C. $33.69 D. $32.95 E. $35.91
3. A company’s weighted average cost of capital is 9.6% per year and the market value of its debt is $43.1 million. The company’s free cash flow next year is expected to be $5.1 million and the free cash flow is expected to grow forever at a rate of 4.0% per year. If the company has 3 million shares of common stock outstanding, what is the intrinsic value per share? A. $13.00 B. $14.00 C. $15.00 D. $17.00 E. $16.00