  (Solution) If The Required Return On Equity Is 12%, Find The Value Of A Stock That Is Expected To Pay A \$1.50 Dividend At The End Of The Year And Has An... | Snapessays.com

(Solution) If the required return on equity is 12%, find the value of a stock that is expected to pay a \$1.50 dividend at the end of the year and has an...

If the required return on equity is 12%, find the value of a stock that is expected to pay a \$1.50 dividend at the end of the year and has an expected growth rate of dividends of 5%.

A. \$12.45

B. \$21.43

C. \$22.50

D. \$12.50

E. none of the above

2. Calculate the price one year ago for a stock that sells today for \$45, just paid an annual dividend of \$2.50, and experienced a 20% return over the past year. Ignore taxes.

A. \$56.25

B. \$37.50

C. \$39.58

D. \$35.42

E. none of the above

3. If the required return is 10%, find the current value of a stock that just paid a \$2 dividend and has an expected growth rate of dividends of 5%.

A. \$21

B. \$42

C. \$40

D. \$20.95

E. none of the above

4. Find the value of a stock that is expected to pay a \$2 dividend in one year. The dividend is not expected to grow. The required return is 10% APR.

A. \$19.90

B. \$20

C. \$0.20

D. \$1.82

E. none of the above

5. Find the required return on equity for a \$30 stock that just paid a \$2 dividend and has an expected growth rate of dividends of 4%.

A. 6.93%

B. 10.93%

C. 10.67%

D. 2.93%

E. none of the above

6. Calculate the payout ratio for a firm with a growth rate in dividends of 5% and a required return on equity of 20%.

A. 25%

B. 75%

C. 15%

D. 85%

E. none of the above

Use the following information to answer Questions 7 and 8.

A company plans to pay a \$4 dividend next year, which represents 100% of expected earnings. This will provide investors with a 15% expected return. Alternatively, the company could plow back 40% of the earnings at the firm's current return on equity of 15%.

7. What is the value of the stock before the plowback decision?

A. \$40

B. \$13.33

C. \$44.44

D. \$26.67

E. none of the above

8. What is the value of the stock after the plowback decision?

A. \$40

B. \$13.33

C. \$44.44

D. \$26.67

E. none of the above

9. The XYZ Company just paid a dividend of \$1.50 per share (from earnings of \$3 per share). The required return on equity is 20%. What is their present value of growth opportunities?

A. \$1.50

B. \$0.50

C. \$7.50

D. \$9.00

E. none of the above

10. Your stock just paid a \$1 dividend. Dividends are paid once per year. For the next two years, dividends are expected to grow at a super high rate of 15%, then fall back to the long-term rate of 5%. If the required return is 8%, what is the correct price for this stock today?

A. \$46.29

B. \$38.95

C. \$56.21

D. \$41.88

E. none of the above

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