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    CF1 Homework 3

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    Klaus Mikaelson
    This document contains information about homework problems from a corporate finance class. It includes details about stock prices, dividend growth rates, risk free and market risk premium rates, and calculations to determine cost of equity and expected stock prices based on growth rates, betas, yields and other financial information provided. The problems ask students to calculate values like stock price today based on future expected dividend growth, how changes to growth periods would affect prices and yields, a company's market value capital structure, and cost of equity under different approaches.

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    CF1 Homework 3

    Uploaded by

    Klaus Mikaelson
    23 views2 pages
    This document contains information about homework problems from a corporate finance class. It includes details about stock prices, dividend growth rates, risk free and market risk premium rates, and calculations to determine cost of equity and expected stock prices based on growth rates, betas, yields and other financial information provided. The problems ask students to calculate values like stock price today based on future expected dividend growth, how changes to growth periods would affect prices and yields, a company's market value capital structure, and cost of equity under different approaches.

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    CF1 Homework 3(1)

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    This document contains information about homework problems from a corporate finance class. It includes details about stock prices, dividend growth rates, risk free and market risk premium rates, and calculations to determine cost of equity and expected stock prices based on growth rates, betas, yields and other financial information provided. The problems ask students to calculate values like stock price today based on future expected dividend growth, how changes to growth periods would affect prices and yields, a company's market value capital structure, and cost of equity under different approaches.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    23 views2 pages

    CF1 Homework 3

    Uploaded by

    Klaus Mikaelson
    This document contains information about homework problems from a corporate finance class. It includes details about stock prices, dividend growth rates, risk free and market risk premium rates, and calculations to determine cost of equity and expected stock prices based on growth rates, betas, yields and other financial information provided. The problems ask students to calculate values like stock price today based on future expected dividend growth, how changes to growth periods would affect prices and yields, a company's market value capital structure, and cost of equity under different approaches.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    BUS 330a: Corporate Finance I Fall 2012, American University in Bulgaria Pro !

    "iroslav "ateev

    HOMEWORK #3 Pro#lem 1 $ C%apter & A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the companys dividend will row at a rate of 20! per year for the ne"t 2 years# then at a constant rate of $! thereafter. %he companys stoc& has a 'eta of (.2# the ris& free rate is $.)!# and the mar&et ris& premium is *!. +hat is your estimate of the stoc&s current price, Pro#lem 2 $ C%apter & -everal years a o# .olen .iders issued preferred stoc& with a stated annual dividend of (0! of its $(00 par value. /referred stoc& of this type currently yields 0!. Assume dividends are paid annually. a. +hat is the value of .olens preferred stoc&, '. -uppose that interest rate levels have risen to the point where the preferred stoc& now yields (2!. +hat would 'e the new value of .olens preferred stoc&, Pro#lem 3 $ C%apter & %aussi %echnolo ies 1orporation (%%1) has 'een rowin at a rate of 20! per year in recent years. %his same supernormal rowth rate is e"pected to last for another 2 years ( (= 2 = 20!). a. If D0 = $(.20# rs = (0!# and 3= 2!# then what %%1s stoc& worth today, +hat is its e"pected dividend yield and its capital ains yield at this time, '. 4ow assume that %%1s period of supernormal rowth is to last another ) years rather than 2 years ( ( = 2 = 5 = * = ) = 20!). 6ow would this affect its price# dividend yield# and capital ains yield, Answer in words only. Pro#lem ' $ C%apter ( -uppose the -choof 1ompany has this book value 'alance sheet7 1urrent assets $50#000#000 8i"ed assets )0#000#000 1urrent lia'ilities 3on 9term de't 1ommon e:uity 1ommon stoc& (( million shares) .etained earnin s %otal claims $(0#000#000 50#000#000 (#000#000 5;#000#000 $00#000#000

    %otal assets

    $00#000#000

    %he current lia'ilities consist entirely of notes paya'le to 'an&s# and the interest rate on this de't is (0!# the same as the rate on new 'an& loans. %hese 'an& loans are not used for seasonal financin 'ut instead are part of the companys permanent capital structure. %he lon 9term de't consists of 50#000 'onds# each with a par value of $(#000# an annual coupon interest rate of 2!# and a 209year maturity. %he oin rate of interest on new lon 9term de't# rd# is (0!# and this is the present yield to maturity on the 'onds. %he common stoc& sells at a price of $20 per share. 1alculate the firms market value capital structure. Pro#lem ) C%apter ( %he earnin s# dividends# and stoc& price of Duner <limpia 1o. are e"pected to row at $! per year in the future. 1ompanys common stoc& sells for $25 per share# its last dividend was $2.00# and the company will pay a dividend of $2.(* at the end of the current year. a. =sin the discounted cash flow approach# what is its cost of e:uity, '. If the firms 'eta is (.2# the ris&9free rate is ;!# and the e"pected return on the mar&et is (5!# then what would 'e the firms cost of e:uity 'ased on the 1A/> approach, c. If the firms 'onds earn a return of (2!# then what would 'e your estimate of r s usin the over own9'ond9yield9plus9?ud mental9ris&9premium approach, (6int7 =se the midpoint of the ris& premium ran e.) d. <n the 'asis of the results of parts a throu h c# what would 'e your estimate of -hel'ys cost of e:uity, Pro#lem * C%apter ( -pencer -upplies stoc& is currently sellin for $20 a share. %he firm is e"pected to earn $).*0 per share this year and to pay a year9end dividend of $5.20. a. If investors re:uire a ;! return# what rate of rowth must 'e e"pected for -pencer, '. If -pencer reinvests earnin s in pro?ects with avera e returns e:ual to the stoc&s e"pected rate of return# then what will 'e ne"t years @/-, (6int7 = .<@ A .etention ratio.)

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