Question

3. Problem 8-20 Value a Constant Growth Stock (LG8-5)

Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 11.5 percent. LTD’s recent dividend was $0.60.

What is the value of Limited Brands stock when the required return is 13.5 percent? (Round your answer to 2 decimal places.) 8. Problem 8-32 Changes in Growth and Stock Valuation (LG8-5) Consider a firm that had been priced using an 8.5 percent growth rate and a 10.5 percent required return. The firm recently paid a $2.30 dividend. The firm has just announced that because of a new joint venture, it will likely grow at a 9.0 percent rate.    How much should the stock price change (in dollars and percentage)? (Do not round intermediate calculations and round your final answers to 2 decimal places.)      Change in stock price $          Change in stock percent %   11. Problem 8-35 P/E Model and Cash Flow Valuation (LG8-5, LG8-7) Suppose that a firm’s recent earnings per share and dividend per share are $2.40 and $1.40, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years.    Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers to 3 decimal places.)      Dividends Years   First year $      Second year $      Third year $      Fourth year $      Fifth year $       Compute the value of this stock in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)      Stock price $       Calculate the price of this stock today, including all six cash flows at discount rate of 10 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)      Present value $

  

Value of stock

$

12.

Problem 8-36 P/E Model and Cash Flow Valuation (LG8-5, LG8-7)

Suppose that a firm’s recent earnings per share and dividend per share are $2.70 and $1.70, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 18 seems high for this growth rate. The P/E ratio is expected to fall to 14 within five years.

  

Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers to 3 decimal places.)

  

Dividends	Years
First year	$
Second year	$
Third year	$
Fourth year	$
Fifth year	$

  

Compute the value of this stock price in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

Stock price

$

  

Calculate the present value of these cash flows using an 11 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

  

Present value

$