Project #158651 - Finance

Business Tutors

Subject Business
Due By (Pacific Time) 12/11/2016 12:00 am

#3) The common stok of NCP paid  $1.47 in dividends last yr. Dividends are expected to grow at an annual rate of 5.10% for an in definite number of yrs.(a) If your required rate of return is 7.60% what is the value of the stock for you?  (round to the nearest cent) (b) should you make the investment?

 #6) Green Gadgets Inc, is trying to decide whether to cut its expected dividend for next yr. from $6 per share to $3 per share in order to have more money to invest in new projects. If it does not cut the dividend, Green  Gadgets' expected rate of growth in dividends is 4% per yr. and the price of their common stock will be $95 per share. If it cuts its dividends the dividend growth rate is expected to rise to 7% in the future. Assuming that the investor's required rate of return for Green Gadget's stock does not change, what would you expect to happen to the price of its common stock if it cuts the  dividend to $3? Should Green Gadgets cut its dividend? (a) res= D1/ vcs + g=$6/ $95 + 0.04= 0.10315=10.31% (this part is right)  I did not get part (b)  

#7) Dubai Metro's stock price was at $110 per share when it announced that it will cut its dividend for the next year from $6 per share to $2 per share, with additional funds used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 5% rate, but with the expansion,dividends are now expected to grow at 8%. How do you think the announcement will affect Dubai  Metro's stock price?

(a) res=D1/ vcs +g =$6/ $110 + 0.05=0.1045=10.45% rate of return for stock( this is correct)

part (b) it did not come out right.

#8) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: (1) the vestors required rate of return is 15%. (2) the expected level of earnings at the end of the yr. (E1) is $6. (3) the firm follows a policy of retaining 50% of it earnings.(4) the return of equity (ROE) is 15% and earnings per share. Now show that you can get the same answer using the discounted dividend model.(a) the stock price using the P/E ratio valuation method is$ 40.00.

vcs=PIE1 X E1=6,667 X $6=40002=$40.00 (this is correct)  

 rate of growth=retention X rate of return on equity (ROE) in dividends (g)   ratio (b)  

 rate of growth = 0.50% X 0.15=0.075=7.50% ( this is correct)    

D1= E1 X (1-retention ratio) $6 X (1-0.50)=6 X 0.5=$3.00 ( this is correct)  the last part I could not get.


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