Finance Homework Solutions: Carla Vista, Inc.
Finance Homework
Please show work & provide clear explanation as to how to get the answers.
Q1
Carla Vista, Inc., paid a dividend of $3.75 last year. The company’s management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 20.0 percent, what is the current value of the stock? (Round answer to 2 decimal places, e.g. 15.25.)
Q2
Carla Vista Corp. paid a dividend of $2.40 yesterday. The company’s dividend is expected to grow at a steady rate of 5 percent for the foreseeable future. If investors in stocks of companies like Carla Vista require a rate of return of 15 percent, what should be the market price of Carla Vista stock? (Round dividend to 3 decimal places, e.g. 3.756 and round final answer to 2 decimal places, e.g. 15.25.)
Q3
Blossom Corp. is expected to pay a dividend of $2.40 next year. The forecast for the stock price a year from now is $39.00. If the required rate of return is 15 percent, what is the current stock price? Assume constant growth. (Round answer to 2 decimal places, e.g. 15.20.)
Q4
Wildhorse Energy Company has issued perpetual preferred stock with a stated (par) value of $100 and a dividend of 3.0 percent. If the required rate of return is 12.00 percent, what is the stock’s current market price? (Round answer to 2 decimal places, e.g. 15.25.)
Q5
The First Bank of Flagstaff has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.60 on this stock. What is the current price of this preferred stock given a required rate of return of 12.5 percent? (Round answer to 2 decimal places, e.g. 15.25.)
Q6
The preferred stock of Blossom Corp. is currently selling at $47.00. If the required rate of return is 13.0 percent, what is the dividend paid by this stock? (Round answer to 2 decimal places, e.g. 15.25.)
Q7
The required rate of return is 23.85 percent. Blossom Corp. has just paid a dividend of $3.12 and is expected to increase its dividend at a constant rate of 8.70 percent. What is the expected price of the stock three years from now? (Round answer to 2 decimal places, e.g. 15.20.)
Q8
You own shares of Sheridan DVD Company and are interested in selling them. With so many people downloading music these days, sales, profits, and dividends at Sheridan have been declining 6 percent per year. The firm just paid a dividend of $1.60 per share. The required rate of return for a stock this risky is 14 percent. If dividends are expected to decline at 6 percent per year, what is a share of the stock worth today? (Round answer to 2 decimal places, e.g. 15.20.)
Q9
Pharoah, Inc., is a fast-growing technology company. Management projects rapid growth of 30 percent for the next two years, then a growth rate of 17 percent for the following two years. After that, a constant-growth rate of 8 percent is expected. The firm expects to pay its first dividend of $2.34 a year from now. If dividends will grow at the same rate as the firm and the required rate of return on stocks with similar risk is 17 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)
Q10
Blossom Corp. will pay dividends of $5.00, $6.25, $4.75, and $3.00 in the next four years. Thereafter, management expects the dividend growth rate to be constant at 8 percent. If the required rate of return is 16.50 percent, what is the current value of the stock? (Round all intermediate calculations and final answer to 2 decimal places, e.g. 15.20.)
