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FIN 301 A Premkumar ellen14 Chapter 8 Stock Valuation solutions (1)

Chapter 8 Stock Valuation
1.) The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.60 per share on its
stock. The dividends are expected to grow at a constant rate of 6 percent per year
indefinitely. If investors require a 12 percent return on The Jackson-Timberlake
Wardrobe Co. stock, what is the current price? What will the price be in three year?
In 15 years?
Po = 1.6 * 1.06 /.12-.06 = 28.27
PV= 28.27 N= 3 I/Y= 6 FV = 33.67
PV= 28.27 N= 15 I/Y= 6 FV= 67.75
2.) The next dividend payment by top Know, Inc., will be $2.50 per ahre. The dividends
are anticipated to maintain a 5 percent growth rate forever. If the stock currently sells
for $48.00 per share, what is the required return?
3.) For the company in the previous problem, what is the dividend yield? What is the
expected capital gains yield?
4.) Stairway Corporation will pay a $3.60 per share dividend next year. The company
pledges to increase its dividend by 4.5 percent per year indefinitely. If you require an
11 percent return on your investments, how much will you pay of the company’s
stock today?
5.) Listen Close Co. is expected to maintain a constant 6.5 percent growth rate in its
dividends indefinitely. If the company has a dividend yield of 3.6 percent, what is the
required return on the company’s sock?
6.) Ayden, Inc., has an issue of preferred stock outstanding that pays a $6.50 dividend
every year in perpetuity. If this issue currently sells for $113 per share, what is the
required return?
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