Problem1. Metallica Bearings, Inc. is a young start-up company. No dividends will be paid on the stock over the next 9 years, because the firm needs to plow back its earnings to fuel growth. The company will then pay the dividend of $15.75 per share ten years from today and will raise the dividend by 5.00 percent per year thereafter.
Required:
If the required return on this stock is 13.00 percent, what is current share price?
Problem2. Antiques ‘R’ us is mature manufacturing firm. The company just paid a dividend of $11.70, but management expects to diminish the payout by 4.5 percent per year, indefinitely.
Required:
If you require a return of 12 percent on this stock, what will you pay for share today?
Problem3. Yang Corp. is growing quickly. Dividends are anticipated to grow at a rate of 28 percent for the next 3 years, with the growth rate falling off to a stable 6.9 percent thereafter.
Required:
If the required return is 16 percent and the company just paid $3.20 dividend, what is current share price? (Hint: Compute the first four dividends.)