FIN 3000 Chapter 8 Homework Flashcards

Questions and Answers

KCP Inc. is expected to maintain a constant 3.2 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.1 percent, what is the required return on the company's stock?

6.90%

7.30%

8.30% (correct)

8.00%

9.30%

Burnett Corp. pays a constant $8.25 dividend on its stock. If the required return on this stock is 11.2 percent, what is the current share price?

$55.13

ABG Corporation has the following dividend forecasts for the next three years: Year 1: $0.25, Year 2: $0.50, Year 3: $1.25. After the third year, it will grow at a constant rate of 5%. What is the price of the stock today?

$26.25

$27.50

$17.40

$18.70

$21.30 (correct)

The Perfect Rose Co. has earnings of $3.18 per share. What stock price would you consider appropriate with a benchmark PE of 18?

$57.24 Signup and view all the answers

Identify which of the following tools is NOT provided through the Mint application.

All of the above tools are provided through this application Signup and view all the answers

What is the dividend yield when Savitz, Inc. pays a next dividend of $2.16 per share and the stock currently sells for $44 per share?

4.9% Signup and view all the answers

What is the required return if the next dividend payment by Savitz, Inc. is $1.60 per share, the dividends maintain a growth rate of 6 percent forever, and the stock sells for $30?

11.3% Signup and view all the answers

What is the required return for Mayfield, Inc. if the next dividend payment is $2.50 per share, growth rate is 4.4 percent, and the stock sells for $36?

11.74% Signup and view all the answers

If Odell's One-Handed Grabs will pay a dividend of $3.40 next year and plans to increase it by 3.25 percent per year indefinitely, what will you pay for the stock today if you require a return of 9 percent?

$59.13 Signup and view all the answers

If the current dividend (D0) is $3.00 and the growth rate is 6%, how much will the dividend be at Time 5?

$4.015 Signup and view all the answers

What is the price per share today if D0 is $5.70, R is 10%, and g is 5%?

$119.70 Signup and view all the answers

What is the price of the stock in five years if D0 is $2.20, the growth rate is 4%, and the required return is 12%?

$34.80 Signup and view all the answers

What is the current share price if Lohn Corporation is expected to pay dividends of $13, $9, $6, and $2.75 for the next four years, with a constant growth rate of 5% thereafter and a required return of 10.75%?

$58.70 Signup and view all the answers

What is the current stock price of the Jackson-Timberlake Wardrobe Co. if the last dividend paid was $2.15, the dividends are expected to grow at a rate of 4% indefinitely, and the required return is 10.5%?

$34.40 Signup and view all the answers

What is the required return on the preferred stock of Bedeker, Inc. that pays a $4.35 dividend and sells for $95 per share?

4.58% Signup and view all the answers

What is the required return for Grateful Eight Co. with a constant growth rate of 6.2 percent and a dividend yield of 8 percent?

14.20% Signup and view all the answers

What is the dividend yield for Savitz, Inc. if the next dividend is $2.34 per share and the stock sells for $37?

6.32% Signup and view all the answers

What is the required return on the preferred stock of Cardi B, Inc. that pays a $3.15 dividend and sells for $72 per share?

4.38% Signup and view all the answers

What is the price you would pay for Hudson Corporation's stock if it will pay a dividend of $2.58 next year and increases it by 4% per year forever, with a required return of 12%?

$32.25 Signup and view all the answers

What is the current stock price of the Jackson-Timberlake Wardrobe Co. with a last dividend of $1.35, dividends expected to grow at a rate of 3 percent per year, and a required return of 10 percent?

$19.89 Signup and view all the answers

What is the current share price of Synovec Co. that just paid a dividend of $2.45, expected to grow at 30 percent for the next three years and then at a constant 4 percent, if the required return is 11 percent?

$68.64 Signup and view all the answers

Study Notes

Required Return on Stock

KCP Inc. has a constant dividend growth rate of 3.2% and a dividend yield of 5.1%.
Required return formula: R = Dividend Yield + Capital Gain Yield, resulting in R = 8.30%.

Burnett Corp. pays a fixed dividend of $8.25 for 13 years, ceasing dividends thereafter.
Required return of 11.2% leads to a current share price calculation of approximately $55.13.

Dividend Forecast and Current Stock Price

ABG Corporation's expected dividends for three years are $0.25, $0.50, and $1.25, with a growth rate of 5% thereafter.
Current stock price calculated as $21.30 using the present value of projected dividends.

Price Estimation Using PE Ratio

Perfect Rose Co. has earnings per share of $3.18; with benchmark PE ratios of 18 and 21, appropriate stock prices would be $57.24 and $66.78 respectively.

Mint Application Features

The Mint application provides tools for Ways to Save, Investment Goals, Spending Habits, and Account Monitoring.

Dividend Yield and Capital Gains

Savitz, Inc. expects a next dividend payment of $2.16 with a constant growth of 5%, leading to a dividend yield of 4.9% and a capital gains yield of 5%.

Required Return from Dividend Growth

Savitz, Inc. anticipates a dividend of $1.60 per share, with a growth rate of 6% and a current stock price of $30, leading to a required return of 11.3%.

Estimation of Required Return on Investment

Mayfield, Inc. will pay $2.50 per share, growing at 4.4%, and currently priced at $36, yielding a required return of approximately 11.34% (corrected from 11.14%).

Current Price Calculation from Expected Future Dividends

For Odell's One-Handed Grabs, with a next expected dividend of $3.40 and a required return of 9% and growth of 3.25%, the current stock price is determined to be $59.13.

Future Dividend Value Calculation

For a current dividend of $3.00 growing at 6%, the dividend at Year 5 is approximately $4.015.

With D0 at $5.70, a required return of 10%, and a growth of 5%, the current price per share is $119.70.

Future Stock Price Estimates

Jackson-Timberlake Wardrobe Co.'s price now is $34.40, expected to grow to $38.70 in 3 years and $61.95 in 15 years.

Preferred Stock Required Return

Bedeker, Inc. has preferred stock with a dividend of $4.35 selling for $95, resulting in a required return of 4.58%.

Long-Term Dividend Growth

Grateful Eight Co. expects a growth rate of 6.2%, providing a required return on stock of 14.20% when combined with a dividend yield of 8%.

Capital Gains Yield and Dividend Yield

The next dividend for Savitz, Inc. is $2.34 per share with a current stock price of $37, leading to a dividend yield of 6.32% and a capital gain yield of 4.5%.

Preferred Stock Return Calculation

Cardi B, Inc. pays a $3.15 dividend with a current market price of $72, which gives a required return of 4.38%.

Current Stock Valuation from Dividend Growth

Hudson Corporation has a next dividend of $2.58, growing at 4%, with a stock price of $32.25 calculated based on required returns of 12%.

Future Growth of Stock Prices

Jackson-Timberlake Wardrobe Co. has current and future stock prices: $19.89 now, $21.71 in 3 years, and $30.95 in 15 years.

Synovec Co. anticipates dividends growing at 30% for 3 years before leveling out to 4%, resulting in a current share price of $68.64 based on required returns of 11%.

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Description

Test your understanding of key concepts in finance with these flashcards from FIN 3000, Chapter 8. This quiz covers topics such as the required rate of return, dividend yields, and growth rates of dividends. Perfect for reinforcing your knowledge ahead of exams!