Self Assessment -HW5B(Value of Common Stock, Expected Rate of return on Common Stock)

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Self Assessment Self ‐ Assessment HW5B(Value of Common Stock, Expected Rate of return on Common Stock) Question 1 Your Answer: Answer Hide Check my answer FINC 330 6380 Business Finance (2242) DP The last dividend of Delta, Inc. was $10.90, the growth rate of dividends is expected to be 4.46 percent, and the required rate of return on this stock is 8.38 percent. What is the stock price according to the constant growth dividend model? Round the answer to two decimal places. The formula is D 0 *(1+g)/(r ‐ g), where D 0 is the last year dividend g is the constant growth rate r is the required rate of return $10.90 *(1+0.0446)/(0.0838 – 0.0446) = 290.46 Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 1 of 6 2/12/2024, 4:53 PM

Question 2 Your Answer: Answer Hide Check my answer Question 3 The next year the common stock of Gold Corp. will pay a dividend of $2.63 per share. If the company is growing at a rate of 3.51 percent per year, and your required rate of return is 11.94 percent, what is Gold's company stock worth to you? Round the answer to two decimal places. The formula is D 0 *(1+g)/(r ‐ g)= D 1 /(r ‐ g), where D 0 is the last year dividend D 1 is the next year dividend g is the constant growth rate r is the required rate of return In this problem “the next year” dividends is given, which is D 1, so $2.63/(0.1194 – 0.0351) = $31.20 The Black Forest Cake Company just paid an annual dividend of $7.25. If you expect a constant growth rate of 3.06 percent, and have a required rate of Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 2 of 6 2/12/2024, 4:53 PM

Your Answer: Answer Hide Check my answer Question 4 return of 12.19 percent, what is the current stock price according to the constant growth dividend model? Round the answer to two decimal places. The formula is D 0 *(1+g)/(r ‐ g), where D 0 is the last year dividend g is the constant growth rate r is the required rate of return In this problem the company “just paid dividend”, so it is D 0 $7.25*(1+0.0306)/(0.1219 ‐ 0.0306) = 81.84 You are considering the purchase of a share of Alfa Growth, Inc. common stock. You expect to sell it at the end of one year for $99.51 per share. You will also receive a dividend of $4.99 per share at the end of the next year . If your required return on this stock is 8.23 percent, what is the most you would be willing to pay for Alfa Growth, Inc. common stock now? Round the answer to two decimal places. Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 3 of 6 2/12/2024, 4:53 PM

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Your Answer: Answer Hide Check my answer Question 5 Your Answer: Answer units Hide Check my answer The value of common stock is the present value of future cash flows. In this case “future cash flows” are the next year selling price and the next year dividend. We have to discount these cash flows one year back to the present. ($99.51 + 4.99)/(1+0.0823) = $96.55 Green Company's common stock is currently selling for $82.09 per share. Last year, the company paid dividends of $3.31 per share. The projected growth at a rate of dividends for this stock is 4.65 percent. Which rate of return does the investor expect to receive on this stock if it is purchased today? Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box) . D 0 *(1+g)/(r ‐ g) = P 0 , where D 0 is the last year dividend Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 4 of 6 2/12/2024, 4:53 PM

Question 6 Your Answer: Answer units Hide Check my answer g is the constant growth rate r is the required rate of return P 0 is the current market price So the rate of return = r = [D 0 *(1+g) / P 0 ] + g [$3.31*(1+0.0465)/$82.09] + 0.0465 = 8.87% Digging Deep Company's common stock is currently selling for $181.91 per share. Next year, the company dividend is expected to be $5.87 per share. The projected growth at a rate of dividends for this stock is 3.86 percent per year. What rate of return does the investor expect to receive on this stock if he or she purchases the stock today? Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box) . D 0 *(1+g)/(r ‐ g)= D 1 /(r ‐ g) = P 0 , where D 0 is the last year dividend D 1 is the next year dividend g is the constant growth rate Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 5 of 6 2/12/2024, 4:53 PM

r is the required rate of return P 0 is the current market price In this problem “the next year” dividends is given, which is D 1, so So the rate of return = r = [D 1 / P 0 ] + g [$5.87/$181.91] + 0.0386 = 7.09% Done Self Assessment - FINC 330 6380 Business Finance (2242) - UMGC Le... https://learn.umgc.edu/d2l/lms/selfassess/user/attempt/selfassess_attem... 6 of 6 2/12/2024, 4:53 PM

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