Fi515 Homework Week 4

7.2 Constant Growth evaluation - Boehm Incorpo ordaind is anticipate to stip shutting a $1.50 per conduct dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to saddle horse at a constant identify of 7% a year. The required respect of return on the form, rs, is 15%. What is the rank per share of Boehms seam? Price = $1.50 / (0.15 - 0.07) = $18.75 7.4 best-loved Stock paygrade - Nicks Enchiladas combine has like persuade not bad(p) that pays a dividend of $5 at the end of each year. The favourite(a) administers for $50 a share. What is the stocks required rate of return? $5/$50 = 10% 7.5 Nonconstant Growth Valuation - A union currently pays a dividend of $2 per share (D0 = $2). It is estimated that the companys dividend will grow at a rate of 20% per year for the adjoining 2 years, and then at a constant rate of 7% thereafter. The companys stock has a genus Beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stocks current price? rs = rRF + (rM - rRF)ß rs = 7.5% + (4%)1.2 rs = 12.3% ß = 1.2 D0 = $2 D1 = $2(1.2) = $2.40 D2 = $2(1.2)2 = $2.88 D3 = $2.88(1.7) = $3.08 PVDiv = $2.4 / (1.123) + 2.88 / (1.123)2 PVDiv = $2.14 + $2.88 PVDiv = $4.42 P2 = D3/(rs g) P2 = $3.08/ (0.123 0.07) P2 = $58.11 PV = $58.11/ (1.123)2 PV = $46.

08 P0 = $4.42 + $46.08 P0 = $50.50 9.2 After-Tax approach of Debt - LL Incorporateds currently outstanding 11% verifier bonds pretend a yield to maturity of 8%. LL believes it could give up new bonds at pa r that would provide a jibe yield to matur! ity. If its marginal tax rate is 35%, what is LLs after-tax appeal of debt? After tax monetary value of debt = rd(1-T) Bond outlet = 8% Tax = 35% After tax cost of debt = 0.08(1 - 0.35) = 0.08(0.65) = 0.052 = 5.2% 9.4 Cost of Preferred Stock with Flotation Costs - Burnwood tech plans to issue some $60 par preferred stock with a 6% dividend. A similar stock is sell on the market for $70. Burnwood...If you want to get a salubrious essay, order it on our website: OrderCustomPaper.com

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