Assignment

Corporate finance (BAF-8)

Question No 1:
Company X is expected to pay an end-of-year dividend of $5 a share. After the dividend its
stock is expected to sell at $110. If the market capitalization rate is 8%, what is the current
stock price?
Question No 2:
Company Y does not plow back any earnings and is expected to produce a level dividend
stream of $5 a share. If the current stock price is $40, what is the market capitalization rate?
Question No 3:
Fledgling Electronics stock is selling for $100 a share. Investors expect a $5 cash dividend
over the next year. They also expect the stock to sell for $110 a year. what is the cost of
equity capital?
Question No 4:
Company Z’s earnings and dividends per share are expected to grow indefinitely by 5% a
year. If next year’s dividend is $10 and the market capitalization rate is 8%, what is the
current stock price?
Question No 5:
Toyota Motor’s market capitalization rate, r, is 15%. The company is expected to pay a
dividend of $5 in the first year, and thereafter the dividend is predicted to increase
indefinitely by 10% a year. The company has earnings per share of EPS 1 = $8.33 and is
plowing back 40% of earnings. Furthermore, the company has the ratio of earnings to book
equity is ROE = 0.25. Calculate the followings:

 Stock price of the Toyota Motors

 Payout ratio
 Growth rate

Question No 6:
Honda Motor’s stock sells for $ 200 per share and next year’s dividend is $ 8.5. Security
analysts are forecasting earnings growth of 7.5% per year for the next five years. Assume
that earnings and dividends are expected to grow at 7.5% in perpetuity. What rate of return
are investors expecting?