Solve using formulas

8. Wayne's Steaks, Inc., has a 9 percent, noncallable, $100-par-value preferred stock issue outstanding. On January 1 the market price per share is $73. Dividends are paid annually on December 31. If you require a 12 percent annual return on this investment, what is this stock's intrinsic value to you (on a per share basis) on January 1? 9. The 9-percent-coupon-rate bonds of the Melbourne Mining Company have exactly

15 years remaining to maturity. The current market value of one of these $1,000-par- value bonds is $700. Interest is paid semiannually. Melanie Gibson places a nominal

annual required rate of return of 14 percent on these bonds. What dollar intrinsic value should Melanie place on one of these bonds (assuming semiannual discounting)? 10. Just today, Fawlty Foods, Inc.'s common stock paid a $1.40 annual dividend per share

and had a closing price of $21. Assume that the market's required return, or capitalization rate, for this investment is 12 percent and that dividends are expected to grow at a

constant rate forever. a. Calculate the implied growth rate in dividends. b. What is the expected dividend yield? c. What is the expected capital gains yield?

13. Red Frog Brewery has $1,000-par-value bonds outstanding with the following character- istics: currently selling at par; 5 years until final maturity; and a 9 percent coupon rate

(with interest paid semiannually). Interestingly, Old Chicago Brewery has a very similar bond issue outstanding. In fact, every bond feature is the same as for the Red Frog bonds, except that Old Chicago's bonds mature in exactly 15 years. Now, assume that the market's nominal annual required rate of return for both bond issues suddenly fell from 9 percent to 8 percent. a. Which brewery's bonds would show the greatest price change? Why? b. At the market's new, lower required rate of return for these bonds, determine the per bond price for each brewery's bonds. Which bond's price increased the most, and by how much? 14. Burp-Cola Company just finished making an annual dividend payment of $2 per share on its common stock. Its common stock dividend has been growing at an annual rate of 10 percent. Kelly Scott requires a 16 percent annual return on this stock. What intrinsic value should Kelly place on one share of Burp-Cola common stock under the following three situations? a. Dividends are expected to continue growing at a constant 10 percent annual rate. b. The annual dividend growth rate is expected to decrease to 9 percent and to remain constant at that level. c. The annual dividend growth rate is expected to increase to 11 percent and to remain constant at the level.