Question

QUESTION 5 The Bain Corporation's dividend per share was $1.00 three years ago and grew at 2% a year until last year. The Bain Corporation will pay an annual dividend per share of $1.00 for year 1. The dividend growth rate will be 12 % a year for year 2 and year 3. Starting in year 4, the dividend will grow at 4 percent forever. The beta of Bain Corporation is 1.2 currently and it will be constant forever. The Bain Corporation's ROE was 10% last year. Instructions If the required rate of return is 10 percent, what is the Bain stock's current value per share? QUESTION 6 For the McGregor Company's shareholders, the dividend per share for year 1 will be equal to the dividend per share for year 2. Starting in year 3, the dividend per share will grow at an annual rate of 5.1 percent forever. The expected return on the market portfolio is 14 percent. The risk- free rate is 4 percent. The risk premium required for the MacGregor stock is 8 percent. The current value per share of the MacGregor stock is $80. Instructions What is the dividend per share for year 1?

Answer 1

5)

B17 X fic =+B16*1.04 13 14 D1 15 D2 16 D3 17 D4 18 Stock price in 3 years 19 PVIF @ 10% 0.909 $ 0.826 $ 0.751 $ D Present value 0.91 0.93 0.94 1.00 $ 1.12 1.25 1.30 $ 21.74 1.3/(10%-4%) 0.751 $ 16.34 20 Current share price $ 19.11

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