FIN 3100-Warr Corporation just paid a dividend of $1 a

FIN 3100-Warr Corporation just paid a dividend of $1 a

Subject: Business    / Finance
Question

9.02

Warr Corporation just paid a dividend of $1 a share (that is, D0 = $1). The dividend is expected to grow 7% a year for the next 3 years and then at 3% a year thereafter. What is the expected dividend per share for each of the next 5 years? Round your answers to two decimal places.

D1 = $
D2 = $
D3 = $
D4 = $
D5 = $

9.03

Constant growth valuation

Thomas Brothers is expected to pay a $3.5 per share dividend at the end of the year (that is, D1 = $3.5). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 14%. What is the stock’s current value per share? Round your answer to two decimal places.

$

9.04

Harrison Clothiers’ stock currently sells for $24 a share. It just paid a dividend of $2.25 a share (that is, D0 = 2.25). The dividend is expected to grow at a constant rate of 6% a year.

What stock price is expected 1 year from now? Round your answer to two decimal places.$
What is the required rate of return? Round your answers to two decimal places. %

9.05

Nonconstant growth valuation

Hart Enterprises recently paid a dividend, D0, of $3.50. It expects to have nonconstant growth of 22% for 2 years followed by a constant rate of 4% thereafter. The firm’s required return is 10%.

How far away is the horizon date?
The terminal, or horizon, date is infinity since common stocks do not have a maturity date.
The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero.
The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

-Select-IIIIIIIVVItem 1
What is the firm’s horizon, or continuing, value? Round your answer to two decimal places.$
What is the firm’s intrinsic value today,P0? Round your answer to two decimal places.$

9.06

Fee Founders has perpetual preferred stock outstanding that sells for $40.00 a share and pays a dividend of $3.00 at the end of each year. What is the required rate of return? Round your answer to two decimal places.

%

9.07

What will be the nominal rate of return on a perpetual preferred stock with a $100 par value, a stated dividend of 10% of par, and a current market price of (a) $59.00, (b) $89.00, (c) $95.00, and (d) $146.00? Round your answers to two decimal places.

%
%
%
%

9.08

A stock is expected to pay a dividend of $0.75 the end of the year (that is, D1 = $0.75), and it should continue to grow at a constant rate of 3% a year. If its required return is 15%, what is the stock’s expected price 5 years from today? Round your answer to two decimal places.

$

9.09

Dozier Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate. Dozier’s WACC is 16%.
Year    0    1    2    3
…….    …….    …….    …….    …….    …….    …….    …….
FCF ($ millions)    …….    …….    …….    …….    …….    …….    …….    ……
NA    – 21    13    35

What is Dozier’s horizon, or continuing, value? (Hint:Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55.$ million
What is the firm’s value today? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55.$ million
Suppose Dozier has $34 million of debt and 25 million shares of stock outstanding. What is your estimate of the price per share? Round your answer to two decimal places. Write out your answer completely. For example, 0.00025 million should be entered as 250.
$
9.10

Barrett Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Barrett does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Barrett’s stock. The pension fund manager has estimated Barrett’s free cash flows for the next 4 years as follows: $2 million, $7 million, $11 million, and $15 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Barrett’s WACC is 9%, the market value of its debt and preferred stock totals $40 million, and it has 23 million shares of common stock outstanding.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

What is the present value of the free cash flows projected during the next 4 years? Round your answer to the nearest cent.
$
What is the firm’s horizon, or continuing, value? Round your answer to the nearest cent.
$
What is the firm’s total value today? Round your answer to the nearest cent.
$
What is an estimate of Barrett’s price per share? Round your answer to the nearest cent.
$