a. What is the difference between common stock and preferred stock? What are some of the characteristics of each type of stock?
b. What is the difference between a publicly held company and a privately held company? How can the two types of companies be identified?
c. What is classified stock? When "going public, why might a small company designate some stock currently outstanding as "founders' shares"?
d. (1) Write a formula that can be used to value any stock, regardless of its dividend pattern.
(2) What is a constant growth stock? How do you value a constant growth stock?
(3) What happens if the growth is constant, and g > rs? Will many stocks have g > rs?
e. Bon Temps has an issue of preferred stock outstanding that pays stockholders a dividend equal to $10 each year. If the appropriate required rate of return for this stock is 8%, what is its market value?
f. Assume that Bon Temps is a constant growth company whose last dividend (D0, which was paid yesterday) was $2 and whose dividend is expected to grow indefinitely at a 6% rate. The appropriate rate of return for Bon Temps' stock is 16%.
(1) What is the firm's expected dividend stream over the next 3 years?
(2) What is the firm's current stock price?
(3) What is the stock's expected value one year from now?
(4) What are the expected dividend yield, the capital gains yield, and the total return during the first year?
g. Assume that Bon Temps' stock is currently selling at $21.20. What is the expected rate of return on the stock?
h. What would the stock price be if its dividends were expected to have zero growth?