finance homework 2

1.9 Tresnan Brothers is expected to pay a $2.20 per share dividend at the end of the year (i.e., D1 = $2.20). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 11%. What is the stock’s current value per share? Round your answer to the nearest cent.

$  

2.9 Weston Corporation just paid a dividend of $1 a share (i.e., D0 = $1). The dividend is expected to grow 9% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the next 5 years? Do not round intermediate calculations. Round your answers to the nearest cent.

D1 = $  
D2 = $  
D3 = $  
D4 = $  
D5 = $  

3.9 Earley Corporation issued perpetual preferred stock with a 12% annual dividend. The stock currently yields 9%, and its par value is $100. Round your answers to the nearest cent.

  1. What is the stock’s value?
    $  

  2. Suppose interest rates rise and pull the preferred stock’s yield up to 12%. What is its new market value?
    $  

4.9 Holtzman Clothiers’s stock currently sells for $35.00 a share. It just paid a dividend of $1.25 a share (i.e., D0 = $1.25). The dividend is expected to grow at a constant rate of 9% a year.

What stock price is expected 1 year from now? Round your answer to the nearest cent.
$  

What is the required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
 %

5.9 Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly’s stock. The pension fund manager has estimated Brandtly’s free cash flows for the next 4 years as follows: $4 million, $5 million, $11 million, and $13 million. After the fourth year, free cash flow is projected to grow at a constant 8%. Brandtly’s WACC is 9%, the market value of its debt and preferred stock totals $60 million, the firm has $15 million in non-operating assets, and it has 21 million shares of common stock outstanding.

  1. What is the present value of the free cash flows projected during the next 4 years? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
    $  
  2. What is the firm’s horizon, or continuing, value? Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
    $  
  3. What is the market value of the company’s operations? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
    $  

    What is the firm’s total market value today? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
    $  

  4. What is an estimate of Brandtly’s price per share? Do not round intermediate calculations. Round your answer to the nearest cent.
    $  

6.9 Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $0.75 coming 3 years from today. The dividend should grow rapidly – at a rate of 40% per year – during Years 4 and 5, but after Year 5, growth should be a constant 5% per year. If the required return on Computech is 14%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent.

8.9

Holt Enterprises recently paid a dividend, D0, of $2.00. It expects to have nonconstant growth of 21% for 2 years followed by a constant rate of 4% thereafter. The firm’s required return is 9%.

  1. How far away is the horizon date?
    1. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero.
    2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2.
    3. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.
    4. The terminal, or horizon, date is infinity since common stocks do not have a maturity date.
    5. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero.
    6. -Select-IIIIIIIVVItem 1
  2. What is the firm’s horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent.$  
  3. What is the firm’s intrinsic value today,  ? Do not round intermediate calculations. Round your answer to the nearest cent.$  

12.9 Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 7% rate. Dantzler’s WACC is 14%.

Year0123…………………………………………………………………………………………………FCF ($ millions)– $23$29$44

  1. What is Dantzler’s horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
    $   million

  2. What is the firm’s market value today? Assume that Dantzler has zero non-operating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
    $   million

  3. Suppose Dantzler has $96.50 million of debt and 10 million shares of stock outstanding. What is your estimate of the current price per share? Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.
    $  

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