Questions -
Q1. JTW Corp. just paid a dividend of $1.70 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 15 percent on the company's stock.
(1) What is the current stock price?
(2) What will the stock price be in three years?
(3) What will the stock price be in 20 years?
Q2. The next dividend payment by Butter Bread, Co., will be $2.16 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $44 per share, what is the required return?
Q3. Steel Inc. will pay a $2.74 per share dividend next year. The company pledges to increase its dividend by 6 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company's stock today?
Q4. You know that a XYZ Corp's stock currently sells for $53 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
Q5. TwitterMe, Inc., is a new company and currently has negative earnings. The company's sales are $2.2 million and there are 134,000 shares outstanding. If the benchmark price-sales ratio is 5.4, what is your estimate of an appropriate stock price? What if the price-sales ratio were 5.1?
Q6. Great Pumpkin Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price?
Q7. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $16 per share dividend in 10 years and will increase the dividend by 5 percent per year thereafter. If the required return on this stock is 10 percent, what is the current share price?
Q8. Lohn Corporation is expected to pay the following dividends over the next four years: $16, $12, $11, and $7.50. Afterward, the company pledges to maintain a constant 6 percent growth rate in dividends forever. If the required return on the stock is 16 percent, what is the current share price?
Q9. E-Eyes.com Bank just issued some new preferred stock. The issue will pay an annual dividend of $27 in perpetuity, beginning 16 years from now. If the market requires a return of 4.1 percent on this investment, how much does a share of preferred stock cost today?