Problem 1: CBC stock is expected to sell for $25 two years from now. Supernormal growth of 5% is expected for the next 2 years. The current dividend is $1.75 and the required return is 14%. What constant growth rate is expected beginning in year 3.
Problem 2. A firm’s stock has a required return of 12%. The stock’s dividend yield is 5%. What dividend did the firm just pay if the current stock price is $50?
Problem 3. Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will increase at an 8% rate annually thereafter. Given a required return of 18%, what should the stock sell for today?
Problem 4. McIntyre’s Moats, Inc. currently pays no dividends, but the firm will begin paying dividends in 3 years. The first dividend will be $3 and dividends are expected to grow at 4% per year thereafter. Given a current market price of $50.50, what is the required return on the stock?
Use the following to answer questions 5 & 6:
52 Weeks Yld Vol
Hi Lo Stock Sym Div % PE 100s Hi Lo Close Chg.
48.72 20.10 Duke Energy DUK 1.00 3.3 18 20925 31.55 29.40 30.20 -0.56
Problem 5. Assume the expected growth rate in dividends is 10%. Then the constant growth model suggests that the required return on Duke stock is:
Problem 6. You believe that the required return on Duke stock is 16% and that the expected dividend growth rate is 12%, which is expected to remain constant for the foreseeable future. Is the stock currently overvalued, undervalued, or fairly priced?