Question

Answer the questions

1.What is the value of a stock based on the dividend-growth model if the firm currently pays a dividend of $1.30 that is growing annually at 5 percent and the required return is 9 percent?

2. If you purchase the stock in Problem 1 for $31.21, what is the return on the investment?

3. A financial analyst recommends purchasing DUDDZ, Inc. at $24.49. The stock pays a $1.60 dividend which is expected to grow annually at 4 percent. If you want to earn 10 percent on your funds, is this a good buy based on the dividend-growth model?

4. If the risk-free rate is 2.3 percent and the anticipated return on the market is 9.0 per-cent, what is the value of the stock in Problem 1, if the beta coefficient is 0.92?

5. If the risk-free rate is 2.3 percent and the anticipated return on the market is 9.0 per-cent, what is the value of the stock in Problem 1 if the beta coefficient is 1.23

6. Given the following information, compute the following ratios: price/earnings, price/ book, price/sales, and PEG.

Sales $10,000

Earnings $1,500

Total assets  $5,000

Equity $2,000

Number of shares outstanding1,000

Estimated growth rate of earnings 6%

Price of the stock $20

Answer 1

1)

2)