Managerial Finance

?lrase b _1-3 , 1-t , 1_6 ) 1_ 7, 7^rz-lid ,J,-l+,, 1{,,1,J,,/or7.,-l(t i-Zo r1-,

{7-7') DpS Calculation

(7-2! Constant Gror.vtl:

Valuarion

f/-3) Constant Growth

Valuation

{7-4) preferred Stock

Valuation

(7_s) Nonconstant Growth

Va}:ation

(7-6) Value of Operations of Constant Growth

Firrn

(7-7) Horizon Value

Intermediate Problems &-17

(7-8) Constant Grofih

Rate, g

{7-e) Constant Growth

Valuation

Thress Industries i*st paid a dividend of $r.50 a share (i.e.. D" = sr.50). The dividend isexpected to grow 5o/o _a fer tor the next 3 years and then l09i a year thereafter. What isthe expected tlivjdenci per share f". .".1,

"i *e next 5 1-ears?

Boehm lnc.rporatedtr,:"p.rrrr-d to par a $1.,i0 psr share aividend at the end of this year(i'e', D, - sr.50)' The dividend,r "ifJ.li'* gr.*, at a consrailt rate of 69zc a 1.ear. The

;.l.fft:ljilf return on the stock,.", iulj"z". what is tr,..rti*utla,aiue per share of woidtke Manufhcturing's stock currentlv se's rbr $22 a share. The stock just paid adividend of $1 20 a shaie (i.e,pq = ii.roj, .rra the <lividencl is expected to grow f,orever ata constant rate of r09o a year. what stock price is expected , y.rli.,r*

'ow? what is theestiraated requirecr rate of return

"n \\ro;;,i;', stock (assum. irr" *u.r.o is in equilibriumu'ith the required return equal to the expected return)i

Nick's Enchiradas Tncorporatetr has preferred stock outstanding that pays a dividenci of g-5at the end of each year"-The p..f".,=,i,.il;;;. $50 a share. #hat is.th" srock,s required :[::;f:ff 1]:"*'the

market i' t" "quiiilrr,um r,r,irh ,r-,"."qui..a'.erurn equal to the

A cornpanv currently pa1.s a di,"rdend of $2 per.share (Do = $2). It is estimated that the ::IifrT$:#:;:1] q:'*':l' 'ut' orzdz" per,)ear ror rhe.,*,t z f"u.,, anci then at a 7 5 o/o, and,r,. *..k.;;lT ilL ffi i:l:,;Tffi ::T,::X,HI:i';;l *X1 .m ftj:,F'N'IC corporation has

'ever paid a di'idencr. Its current iree cash fl.w of $400,000 isexpected fo grolv at a constant rate o1: 50/o. The iveigirted al€rage cost of capital is\r/ACC = l2olo. Cajcuiate EMC,s estimatej

""i"" "i operations.

current and projecteri fr"ee cash trors for Radeil Globar operations are shorvn berort.Gro*th is expe*ec1 ro be consrant alier 20r5, ,i{ lT weighte<l a\rerage cost of capital isll"u whar is rhc horizrn (c.ntinuing)".1;.;;)o,u,rg.u,,LI, ,rr*loii remairrs consranr?

Actual 2013

Free cash flow $606.82 {rnillions of dolfarsi

rX X.'..5:1:TiiT ilf i:ffi,'"ni'j:15 :]"_:l l. expeded ro have a vear-end clividend or $i,: ::.:T;".!?,=l-);#' *I:, :f ::*j;;ed ;' il::i:il:J: ;;E Jx*$:S:i,*l:i}:Tfi:lr:1,'il',;:::':::":,ilru1 jil[::x:lT',:':::'iffiI:i"JilT:required rerur n equat to the expect.d .;;;;.";;;,'; ;::.T.::::, "JrTCri<n r'^^i...,....^'^ B,: ;:$.??5T:'-:;TI";:xll:l';'"":li:::1..0u, a dividend r:rg3 a share at trre end or ;?:x'J1?;;T;'"' j,.:::":;I-;;,i;:;d::T,:';'i:#,T"1i;:T:".i:J'[;

projected 2014 2015 2016

$667.50 $707.55 $7s0.00

:JH*il ::,1'1":H.' :':"::' : ::.* :.j j:, ;;;; ; ffi ;' J[,]1 :n T,':X] Ji'.u,,".urff :J ilfit *f i: l'.'i*,i' :':T1"1 !,T ;; F i ;,"' ;ffiff H::"ilXlji il:marker believe rvill be rhe stock,s p.ic. Jt r;;ilTIfi::[::.ffi;;:T.',i

Easy Problems 1-7