Question

. Kicssling Corp. pays a constant S9 dividend on its stock. The company will maintain this dividend for the next eight years and will then cease paying dividends forever. If the required return on this stock is 11 percent, what is the current share price? 1. Metallica Bearings, Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years, because the first needs to plow back its carnings to fuel growth. The company will pay a S7 per share dividend in 10 years and will increase the dividend by 6 percent per year, thereafter. If the required return on this stock is 14 percent, what is the current share price? 2. Corn, In., has an odd dividend policy. The company has just paid a dividend of $6 per share and has announced that it will increase the dividend by S2 per share for cach of the next four ycars, and then never pay another dividend. If you require an 11 percent return on the company's stock, how much will you pay for a share today? . Super Growth Co. is growing quickly. Dividends are expected to grow at a 32 percent rate for the next three years, with the growth rate falling off to a constant 7 percent thereafter. If the required return is 15 percent and the company just paid a $2.25 dividend, what is the current share price?

Answer 1

1.
=9/11%*(1-1/1.11^8)=46.31510485

2.
=7/1.14^10*(1-(1.06/1.14)^10)/(1-(1.06/1.14))=13.90900493

3.
=8/1.11+10/1.11^2+12/1.11^3+14/1.11^4=33.31996175

4.
=2.25*(1.32/1.15)+2.25*(1.32/1.15)^2+2.25*(1.32/1.15)^3+2.25*(1.32/1.15)^3*1.07/(15%-7%)=54.45935728

Answer 2

4/ Price in the first three years discounted = 6.78

price after the three years discounted = 45.51

P0= 52.29