Exercises on Stocks Valuation (Chapter 7):

Question 1:

Diettreich Electronics wants its shareholders to earn a 15% return on their investment in the company. At what price would the stock need to be priced today if Diettreich Electronics had:

a $0.25 constant annual dividend forever?

a $1.75 constant annual dividend forever?

Question 2:

Seitz Glassware is trying to determine its growth rate for an annual cash dividend. Last years dividend was $0.25 per share. The stocks target return rate is 10%. What is the stocks price if : a. the annual growth rate is 1%?

1

the annual growth rate is 3%?

the annual growth rate is 5%?

Question 3:

Miles Hardware has an annual cash dividend policy that raises the dividend each year by 3%.

Last years dividend was $1.00 per share. Investors want a 15% return on this stock. What is the stocks price if

the company will be in business for 5 years and not have a liquidating dividend?

the company will be in business for 15 years and not have a liquidating dividend?

the company will be in business for 25 years and not have a liquidating dividend?

Question 4:

Yankee Athletic Club has preferred stock with a par value of $50 and an annual 6% cumulative dividend. Given the following market prices for the preferred stock, what is each investor seeking for his or her return?

Alex is willing to pay $40.00

Derek is willing to pay $30.00