1. ABC Corporation expects to pay dividend of $1.00 next year. The corporation forecasts that the...

 

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1. ABC Corporation expects to pay dividend of $1.00 next year. The corporation forecasts that the dividend will grow 10% in year 2, 20% in year 3, -10% in year 4, 15% in year 5, and after that at 3% constant rate. The risk free is now 3.50%, the rate of return on the market is 7.50%. The corporation's beta is 0.75. a. Calculate required rate of return of ABC Corporation. Calculate the stock price of the firm. b. 2. Stefani Enterprise just invested in a new machine for $20 million. The company forecasts the free cash flows shown below. The weighted average cost of capital (WACC) is 13.0%. What is the firm's total corporate value, in millions? Year FCF 1 5,000,000 2 6,000,000 3 7,000,000 4 7,000,000 5 7,500,000 3. Based on question 2. If the company has market value of debt and preferred stock of $1 million and 1 million shares outstanding, what is the stock price of the company? 4. If Do = $2.25, growth (which is constant) = 10%, and Po= $ 75 a. What is the stock's expected dividend yield for the coming year? b. If the required rate of return is 13.50%, what is the stock price of the stock? What would you recommend for investment strategy? 1. ABC Corporation expects to pay dividend of $1.00 next year. The corporation forecasts that the dividend will grow 10% in year 2, 20% in year 3, -10% in year 4, 15% in year 5, and after that at 3% constant rate. The risk free is now 3.50%, the rate of return on the market is 7.50%. The corporation's beta is 0.75. a. Calculate required rate of return of ABC Corporation. Calculate the stock price of the firm. b. 2. Stefani Enterprise just invested in a new machine for $20 million. The company forecasts the free cash flows shown below. The weighted average cost of capital (WACC) is 13.0%. What is the firm's total corporate value, in millions? Year FCF 1 5,000,000 2 6,000,000 3 7,000,000 4 7,000,000 5 7,500,000 3. Based on question 2. If the company has market value of debt and preferred stock of $1 million and 1 million shares outstanding, what is the stock price of the company? 4. If Do = $2.25, growth (which is constant) = 10%, and Po= $ 75 a. What is the stock's expected dividend yield for the coming year? b. If the required rate of return is 13.50%, what is the stock price of the stock? What would you recommend for investment strategy?