. A share of common stock just paid a dividend of $2.00. If the expected long-run growth rate for this stock is 5.40%, and if investors’ required rate of return is 13.50%, what is the stock price?
2. A stock will pay a dividend of $1.80 this year. The required rate of return is r = 12.10%, and the constant growth rate is g = 5.00%. What is the current stock price?
3. Francis Inc.’s stock has a required rate of return of 12.50%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?
4. Sorenson Corp.’s expected year-end dividend is D1 = $2.00, its required return is r = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 7 years, i.e., what is P7?
5. Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects sales and dividends to grow at a rate of 20% for the next 4 years, after which competition will probably reduce the growth rate in sales and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.20, required rate of return on the stock is 9.60%. What is the current price of the common stock?
6. Nachman Industries just paid a dividend of D0 = $1.42. Analysts expect the company’s dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 4% in Year 3 and thereafter. The required return on this stock is 8.00%. What is the best estimate of the stock’s current market value?
Stock valuation is more difficult than bond valuation. Please explain.
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