Stock Valuation

Author:

August 11th, 2022

Q.1

Nofal Corporation will pay a $4.00 per share dividend next year. The company pledges to increase its dividend by 5.5 percent per year, indefinitely.

Required:

If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today?

Q.2

Raffalovich, Inc., is expected to maintain a constant 5.45 percent growth rate in its dividends, indefinitely.

Required:

If the company has a dividend yield of 3.95 percent, what is the required return on the company’s stock?

Q.3

You’ve collected the following information from your favorite financial website.

52-Week Price		Stock (Div)	Div Yld %	PE Ratio	Close Price	Net Chg
Hi	Lo	Stock (Div)	Div Yld %	PE Ratio	Close Price	Net Chg
79.3	10.62	Palm Coal 0.55	3.5	6	15.80	–0.24
55.81	33.42	Lake Lead Grp 1.54	3.8	10	40.43	–0.01
130.93	69.50	SIR 2.00	2.2	10	88.97	3.07
50.24	13.95	DR Dime 0.80	5.2	6	15.43	–0.26
35.00	20.74	Candy Galore 0.32	1.5	28	??	0.18

According to your research, the growth rate in dividends for Palm Coal for the previous 10 years has been 4.25 percent.

Required:

If investors feel this growth rate will continue, what is the required return for Palm Coal stock?

Q.4

Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.10, but management expects to reduce the payout by 5 percent per year, indefinitely.

Required:

If you require a return of 11 percent on this stock, what will you pay for a share today?

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