Problem
I. Company B whose stock is trading at Php110 per share requires an 8% minimum rate of return and will pay a Php3 dividend per share next year, which is expected to increase by 5% annually. What is the value of the stock? Is it worth buying? Why?
II. Company C is trading at $25 per share and requires a 10% discount rate. The company will pay $2 per share indefinitely. What is the value of the stock? Is it worth buying? Why?
Suppose Integrity Corporationnhas the following expected dividends for the next 4 years:
Year Expected Dividend
1 $2.00
2 $3.50
3 $4.60
4 $5.00
The dividend will grow by 6% after the fourth year. The required rate of return is 12%. What is the value of the stock today? If the stock is selling at $50, is it worth buying?
III. SMPH has the following dividends. What is the value of the stock if the ror is 13%. If the stock is selling at Php29.95, is it worth buying? Why?
YEAR DIVIDENDS
2016 0.23
2017 0.26
2018 0.30
2019 0.35
2020 0.185