Question

1. A company is a fast growing technology company. The firm projects a rapid growth of 40 percent for the next two years and then a growth rate of 20 percent for the following two years. After that, the firm expects a constant-growth rate of 12 percent. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock? A. $30.30 B. $15.63 C. $21.70D. $22.68 E. $18.062.

2. A company projects a rapid growth of 30 percent this year and next year and then a growth rate of 8 percent thereafter. The firm expects to pay its first dividend of $1.25 a year from now. If your required rate of return on such stocks is 20 percent, what is the current price of the stock? A. $14.30 B. $13.63 C. $12.33D. $10.68 E. $11.063.

3. A company will not pay a dividend for the first 2 years. In 3 years they anticipate that dividend will be $5 and it will grow 20% for one year and then have constant growth of 5% forever. If the required rate of return for this stock is 13%, what is the value of the stock today? A. $56.40 B. $57.48 C. $59.78 D. $55.44 E. $63.504.

4. A stock just paid a dividend of $4 and is expected to pay a $5 dividend each of the next two years and then be sold at $50. If the required rate of return is 8%, what is the value today?A. $56.84 B. $54.98 C. $53.57 D. $51.78 E. $57.57

Answer 1

WNPD Expected dividend $1.25 $1.75 $2.10 $2.52 $35.28 (2.52*1.12)/(0.2-0.12) Current share price pv @ 20% 0.8333 0.6944 0.5787 0.4823 0.4823 Present value $1.04 $1.22 $1.22 $1.22 $17.01 $21.70 Price at year 4