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Inclass Tutorial Week 4 Shares (Questions) 2102

This document provides a tutorial on stock valuation and contains 9 practice questions related to calculating stock prices given information about expected future dividends, dividend growth rates, and required rates of return. The questions cover a range of scenarios including constant dividend growth, variable growth rates, and perpetual versus finite growth periods. Students are asked to use common stock valuation models and concepts like dividend discount models to derive current stock prices from the given financial projections and investment return requirements.

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202 views1 page

Inclass Tutorial Week 4 Shares (Questions) 2102

This document provides a tutorial on stock valuation and contains 9 practice questions related to calculating stock prices given information about expected future dividends, dividend growth rates, and required rates of return. The questions cover a range of scenarios including constant dividend growth, variable growth rates, and perpetual versus finite growth periods. Students are asked to use common stock valuation models and concepts like dividend discount models to derive current stock prices from the given financial projections and investment return requirements.

Uploaded by

oxjigen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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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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