1. Stock Valuation Problems ( Please wether you use excel or not to solve those problems, show your steps so that i can understand)
2. A stock is trading at $75 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate g throughout time. The stock’s required rate of return is 13% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of g?(You can use the constant growth model to solve for g algebraically)
3. Burned Cookie’s common stock is expected to pay a dividend of $3 a share at the end of this year (D1 = $3.00); its beta is 0.9; the risk-free rate is 4.2%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $40 a share. Assuming the market is in equilibrium, what does the market believe will be the stock’s price at the end of 3 years (i.e., what is P3)?
4. Bob’s Mining Company’s coal reserves are being depleted, so its sales are falling. Also, environmental costs increase each year, so its costs are rising. As a result, the company’s earnings and dividends are declining at the constant rate of 3% per year. If D0 = $6 and rs = 13%, what is the estimated value of Bob’s Mining stock?
5. Fisher Company’s current stock price is $36 00, its last dividend was $2 40, and its required rate of return is 12%. If dividends are expected to grow at a constant rate, g, in the future and if rs is expected to remain at 12%, what is Fisher’s expected stock price 5 years from now?
6. You can value a stock based just on its expected cash flows to an investor. If a stock is expected to pay dividends of $1.25 per year for the next five years and you believe that you can sell it for $65 at the end of the five year period, what is its value if your required rate of return is 11%?
7. If you paid $50 for a share of stock and received dividends of $2 per year for 3 years and then sold the stock for $70, what was your rate of return? Hint: Use the IRR function in Excel.