1. ATP Industries paid a $0.50 dividend to its common shareholders 6 years ago. It just paid a dividend of $0.67 to its common shareholders. If dividends continue to grow at this rate for the foreseeable future, and the shares are worth $10.05, what is the investor’s required return?
2. What are the three requirements to use the constant dividend growth model in valuing common stock?
3. What are the uses of firm free cash flows (FCFs)?
4. What are the four typical rights holders of common stock possess? Also, define those rights.
5. Maverick Milling Co. just paid a dividend of $1.00 to its shareholders. The firm is expecting high growth over the next few years and is projecting the dividend to grow by 15% in the first year, 20% in the second year, and 20% in the third year and 20% in the fourth year, before slowing down to a constant 3% growth rate from that point forward. If the required return on the stock is 12%, answer the following questions: (a) What is next year’s dividend amount? (b) What is the terminal or horizon value? and (c) What is the intrinsic value (price) of the stock today?
6.Paradise Adventures issued 7% coupon bonds with a maturity of twenty years five years ago. The bonds are callable beginning 10 years prior to maturity at 103% of par value. The bonds are currently priced at 99.25% of par. Coupons are paid semiannually and the face value is $1,000. (1) What is the YTM? (2) What is the YTC? (3) Which is the relevant yield for an investor?
7. Tropical Dreams bonds have a duration of 6.8 years and a modified duration of 6.50. If the yield is expected to decrease by 0.1%, what is the expected percentage change in the price of the bonds issued by Tropical Dreams? The yield to maturity is 9% and the bonds mature in ten years. The bonds carry a 9% coupon, paid semiannually. The par value is $1,000.