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

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Finance

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Feb 20, 2024

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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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