What is the current share valueof Rising Bank's stock to an investor who has a required rate of return of 25 percent? The current dividend is $5.45(D0) and the dividends are expected to grow 8 percent per year for 4 years. At the end of 4 years, the investor expects to sell the security for $50.
- What is the current share valueof Rising Bank's stock to an investor who has a required
rate of return of 25 percent? The current dividend is $5.45(D0) and the dividends are expected to grow 8 percent per year for 4 years. At the end of 4 years, the investor expects to sell the security for $50.
2.Milton Incorporation is planning a $100 million expansion. This expansion will be financed, in part with debt issued with a coupon interest rate of 9.50%. Interest is paid annually. The bonds have a 25-year maturity and a $1000 face value, and they will be sold to net Milton $1020 after issue costs. Milton’s marginal tax rate is 30%.
Milton’s target capital structure is as follows:
Debt 40%
Preferred Stock 15%
Common Equity 45%
Calculate the weighted average cost of capital that is appropriate to use in evaluating this expansion program.
3.Twenty years ago, Video Toys began manufacturing and selling coin-operated arcade games. Dividends are currently $2.80 per share, having grown at a 14% percent compound annual rate over the past 10 years. That growth rate is expected to be maintained for the next 2 years, after which dividends are expected to grow at half that rate for 3 years. Beyond that time, Video Toys's dividends are expected to grow at 5 percent per year. What is the current value of a share of Video Toys common stock if your required rate of return is 22%?
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