1. fill out in your own word 1. Dividend discount model 2. Constant growth DDM 3....

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1. fill out in your own word 1. Dividend discount model 2. Constant growth DDM 3. Dividend payout ratio 4. Earnings retention ratio 5. Present Value of Growth Opportunities 2. Work through 1. a. IBX's stock dividend at the end of this year is expected to be $2.15, and it is expected to grow at 11.2% per year forever. If the required rate of return on IBX stock is 15.2% per year, what is its intrinsic value? b. If IBX's current market price is equal to this intrinsic value, what is next year's expected price? c. If an investor were to buy IBX stock now and sell it after receiving the $2.15 dividend a year from now, what is the expected capital gain (i.e., price appreciation) in percentage terms? What is the dividend yield, and what would be the holding-period return? 3. Resolve 1. 2. a. Calculate the price of a firm with a plowback ratio of .60 if its ROE is 20%. Current earnings, E, will be $5 per share, and k = 12.5%. b. What if ROE is 10%, which is less than the market capitalization rate? Compare the firm's price in this instance to that of a firm with the same ROE and E but a plowback ratio of b = 0. 3. Gap Inc. currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Gap shares based on the constant growth model is $32.03, what is the required rate of return? 4. Best Buy has a current market value of $41 per share with earnings of $3.64. What is the present value of its growth opportunities if the required rate of return is 9%? the required rate of return is 8% 1. What is the value of a stock paying a fixed divided of $2? 2. What is the value of the same stock if the dividend is expected to grow at 3%? 2. FaceBook currently provides an expected rate of return of 20%. If FB is expected to pay a year-end dividend of $3 per share and the stock is selling at $60 per share, what must be the market's expectation of the constant-growth rate of FB's dividends? E(r) =D1/Po +g 3. PPRUY (Kering) is currently priced at $57.14 and just announced a new contract with Post Malone. The profitable contract will enable them to increase the dividend growth rate from 5% to 6% (current dividend projected at $4). What happens to the stock price after the announcement? (how does the value of PPRUY change?) Vo=D1/K-g E(r)=D1/Po +g 4. Suppose there are two companies, Ford and Tesla, with EPS expected to remain at $5. The market capitalization rate, k, is 5. Rose Hill Trading Company is expected to have EPS in the upcoming year of $6. The expected ROE is 18%. An appropriate required return on the stock is 14%. If the firm has an earnings retention (plowback) ratio of 70%, what is its intrinsic value? 1. fill out in your own word 1. Dividend discount model 2. Constant growth DDM 3. Dividend payout ratio 4. Earnings retention ratio 5. Present Value of Growth Opportunities 2. Work through 1. a. IBX's stock dividend at the end of this year is expected to be $2.15, and it is expected to grow at 11.2% per year forever. If the required rate of return on IBX stock is 15.2% per year, what is its intrinsic value? b. If IBX's current market price is equal to this intrinsic value, what is next year's expected price? c. If an investor were to buy IBX stock now and sell it after receiving the $2.15 dividend a year from now, what is the expected capital gain (i.e., price appreciation) in percentage terms? What is the dividend yield, and what would be the holding-period return? 3. Resolve 1. 2. a. Calculate the price of a firm with a plowback ratio of .60 if its ROE is 20%. Current earnings, E, will be $5 per share, and k = 12.5%. b. What if ROE is 10%, which is less than the market capitalization rate? Compare the firm's price in this instance to that of a firm with the same ROE and E but a plowback ratio of b = 0. 3. Gap Inc. currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Gap shares based on the constant growth model is $32.03, what is the required rate of return? 4. Best Buy has a current market value of $41 per share with earnings of $3.64. What is the present value of its growth opportunities if the required rate of return is 9%? the required rate of return is 8% 1. What is the value of a stock paying a fixed divided of $2? 2. What is the value of the same stock if the dividend is expected to grow at 3%? 2. FaceBook currently provides an expected rate of return of 20%. If FB is expected to pay a year-end dividend of $3 per share and the stock is selling at $60 per share, what must be the market's expectation of the constant-growth rate of FB's dividends? E(r) =D1/Po +g 3. PPRUY (Kering) is currently priced at $57.14 and just announced a new contract with Post Malone. The profitable contract will enable them to increase the dividend growth rate from 5% to 6% (current dividend projected at $4). What happens to the stock price after the announcement? (how does the value of PPRUY change?) Vo=D1/K-g E(r)=D1/Po +g 4. Suppose there are two companies, Ford and Tesla, with EPS expected to remain at $5. The market capitalization rate, k, is 5. Rose Hill Trading Company is expected to have EPS in the upcoming year of $6. The expected ROE is 18%. An appropriate required return on the stock is 14%. If the firm has an earnings retention (plowback) ratio of 70%, what is its intrinsic value?