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FIN2102/TUTORIAL/week4

MODULE : FINANCIAL MANAGEMENT (FIN2102)


CAMPUS : IICKL
TOPIC : STOCKS VALUATION

1. What is the price for a stock with an expected dividend and price next year of $0.16 and
$60, respectively? Use a 12% discount rate

2. Pricing of Common Stock : Assume that dividends will grow at a constant rate of g =
10.95%, D0 = $1.00, and k = 13%.

3. The dividend of Denham Company, an established textile manufacturer, is expected to


remain constant at $3 per share indefinitely. What is the value of Denhams stock if the
required return demanded by investors is 15%?

4. The Hamley Company has just paid dividend of $3 per share. The dividend of this
company grows at a steady rate of 8% per year. What will be the dividend in five years?

5. The next dividend payment by Blue Cheese, Inc., will be $2.10 per share. The dividends
are anticipated to maintain a growth rate of 5% forever. If the stock currently sells for $48
per share, what is the required return?

6. TCs stock is currently selling for $160.00 per share and the firms dividends are
expected to grow at 5 percent indefinitely. Assuming TCs most recent dividend was
$5.50, what is the required rate of return on TCs stock?

7. Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.35 next year.
The growth rate in dividends for all three companies is 5%. The required return for each
companys stock is 8%, 11% and 14% respectively. What is the stock price for each
company?

8. Assume that dividends for ABC Corp will grow at a variable rate for the first three years
(2011, 2012, 2013). After that the annual rate of growth in dividends is expected to settle
down to 8% and then stay there for the foreseeable future. Starting with the latest (2010)
annual dividend of RM2.21 a share, we estimate that ABC Corp dividends should grow
by 20% next year (2011) until 2013 before dropping to 8% rate. In addition, given ABC
risk profile, we feel that the investment should produce a minimum required rate of return
(k) of at least 14%. Calculate the current market price of the share.

9. A company has just paid a dividend of 15 cents per share and that dividend is expected to
grow at a rate of 20 per cent per annum for the next three years, and at a rate of 5 per cent
per annum forever after that.
Assuming a required rate of return of 10 per cent, calculate the current market price of the
share.

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