Question

Quantitative Problem 1: Hubbard Industries just paid a common dividend, D₀, of $2.00. It expects to grow at a constant rate of 2% per year. If investors require a 8% return on equity, what is the current price of Hubbard's common stock? Round your answer to the nearest cent. Do not round intermediate calculations.

Quantitative Problem 2: Carlysle Corporation has perpetual preferred stock outstanding that pays a constant annual dividend of $1.30 at the end of each year. If investors require an 10% return on the preferred stock, what is the price of the firm's perpetual preferred stock? Round your answer to the nearest cent. Do not round intermediate calculations.

Quantitative Problem 3: Assume today is December 31, 2013. Imagine Works Inc. just paid a dividend of $1.30 per share at the end of 2013. The dividend is expected to grow at 12% per year for 3 years, after which time it is expected to grow at a constant rate of 5.5% annually. The company's cost of equity (r_s) is 9%. Using the dividend growth model (allowing for nonconstant growth), what should be the price of the company's stock today (December 31, 2013)? Round your answer to the nearest cent. Do not round intermediate calculations.

Answer 1

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C W ENG 02:34 22-03-2020 99+ 16 Х EZ113 . EP EQ ER ES ET EU EV EW EX EY EZ FA FB 90 91 92 93 94 HUBBARD DO 2 2% 95 96 g= ke = 8% 97 98 99 D1 = DO*(1+g) 2*(1+0.02) 100 2.04 101 PO = PO = 102 103 104 105 106 D1/(ke-g) 2.04/(0.08-0.02) 34.00 ANSWER PO = 1.3 CARLYSLE DE kp = 10% 107 108 109 110 111 112 113 PRICE OF PREFERRED STOCK PO = D/kp PO = 1.3/0.10 ANSWER PO = 13 " UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLO Q DIR right clean YIELD bond portfolio

C W ENG 02:37 22-03-2020 99+ 16 Х V163 < U V w Х Y Z АА AB PROBLEM 3 DIVIDEND CALCULATIONS DO 01 D2 1.3 1.4560 1.5*(1+0.12) 1.6307 1.4560*(1+0.12) 1.8264 1.6307*(1+0.12) 1.9269 1.8264*(1+0.055) D3 D4 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 g=5.5%, ke =9% P3= D4/(ke-g) = 1.9269/(0.09-0.055) = 55.05 PRICE OF STOCK TODAY 1 D1 1.4560 PV FACTOR @9% PV OF ALL CASH FLOW 0.9174 1.34 0.8417 1.37 0.7722 43.92 2 D2 1.6307 56.8795 3 D3 + P3 CURRENT PRICE = PO = 46.63 ANSWER: $ 46.63 161 162 163 164 165 211 UTILITY, SHARPE, beta CoNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio