Question

PLEASE answer all of the following. Thank you!

Marsha Corporation is expected to pay a $3.08 dividend in the coming year. Based on past experience Marsha’s management is expected to increase this dividend by 4% per year forever into the future. You look at the type of industry Marsha is in and determine that an 8% return is reasonable. Using this information, at what price should Marsha’s stock be trading in the market?

Using the data in the previous problem – now assume that the Federal Reserve has raised interest rates and it is now reasonable to expect an 11% return. What is the most you are willing to pay for Marsha’s stock under these new conditions.

E Corporation has preferred stock outstanding that pays a $1.12 dividend. This is typical preferred stock in that the dividend is not expected to change for the life of the stock. Based on the risk of E Corporation, you think it is reasonable to expect a return of 9 percent. What is the value of this preferred stock?

F Corporation has a policy to grow the company’s cash flows and consequently the dividend by 5 percent each year. In addition, F Corp is in an industry where risk is relatively low. Because of this low risk, a 11 percent return is reasonable as a required return. Assuming that F Corp will live up to these projection forever and expects to pay a $1.74 dividend per share at the end of the coming year, what is a ballpark estimate of the value of this common stock?

Melanie Corporation is expected to pay a $2.00 dividend in the coming year. Based on past experience Melanie’s management is expected to decrease this dividend by 3% per year forever into the future. You look at the stability of industry Melanie is operating in and determine that a 6% return is reasonable. Using this information, at what price should Melanie’s stock be trading in the market?