Question: You need to accumulate $10,000. To do so, you plan to make a deposit of $1,250 per year - with the first payment being made a year from today - into a bank account that pays 12% annual interest. Your last deposit will be less than $1,250 if less is needed to round out to $10,000. How many years will t take you to reach your $10,000 goal, and how large will the last deposit be?
1. Define each of the following terms:
a) Proxy; proxy fight; pre-emptive right; classified stock; founder's shares
b) Estimated value (Po); market price (Po)
c) Required rate of return, rs; expected rate of return, rs; actual, or realized, rate of return, rs
d) Capital gains yield; dividend yield; expected total return
e) Constant growth; no constant growth; zero growth stock
f) Preferred stock
g) Nonoperation assets
h) Value of operations; horizon value; free cash flow valuation model
2. Constant Growth Valuation:
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year. The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock is 13%. What is the estimated value per share of Boehm's stock?
3. No constant Growth Valuation
A company currently pays a dividend of $2 per share. It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stocks? Current price?