Question

4. The preferred stock of You Corp pays a $3.75 dividend. What is the value of the stock of your required return is 8.5%? Look at valuation for preferred stock 5. You are looking to invest in a company that has 10.5% return on equity and retains 60% of its earnings for reinvestment purposes. The company recently paid a dividend of $3.75 and the stock is currently selling for $45. Look at valuation for common stock A) What is the growth rate of the company? B) What is the expected return on the company's stock? C) If you REQUIRE a 13 percent return, should you invest in this firm? 6. You own 230 shares of Candy Land stock preferred stock which currently sells for $39.75 per share and pays annual dividends of $3.35. A) What is your expected return? B) If you require 8 percent return, given the current price, should you buy more stock? 7. The common stock for Cardi Inc. is selling for $35.78 per share. The stock recently paid dividends of $2.79 per share and has a projected constant growth rate of 7 percent. If you purchase the stock at market price, what is your expected rate of return.

Answer 1

4

PV of perpetual CF = Perpetual CF/(interest rate-growth rate)

PV of perpetual CF = 3.75/(0.085-0)

PV of perpetual CF = 44.12

Please ask remaining parts seperately, questions are unrelated