Posted: August 11th, 2022

Stock Valuation

Q.1

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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
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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