1. Preferred Stock.
X Products has issued preferred stock with an $8 annual
dividend that will be paid in perpetuity.
a. If the discount rate is 12 percent, at what price should the preferred sell?
b. At what price should the stock sell 1 year from now?
c. What is the dividend yield, the capital gains yield, and the
expected rate of return of the stock?
2. Stock Values.
Company X paid a $1 per share dividend yesterday. You
expect the dividend to grow steadily at a rate of 4 percent per year.
a. What is the expected dividend in each of the next 3 years?
b. If the discount rate for the stock is 12 percent, at what price
will the stock sell?
c. What is the expected stock price 3 years from now?
d. If you buy the stock and plan to hold it for 3 years, what payments
will you receive? What is the present value of those payments?
Compare your answer to b.
Excel
3. Constant-Growth Model.
Here are data on two stocks, both of which have discount rates of 15 percent:
Stock A Stock B
Return on equity 15% 10%
Earnings per share $2.00 $1.50
Dividends per share $1.00 $1.00
a. What are the dividend payout ratios for each firm?
b. What are the expected dividend growth rates for each firm?
c. What is the proper stock price for each firm?
4. Determine the PRESENT VALUE of the following:(USE CHARTS)
a. An investment which will return $10,000 in 10 years; similar
investments are generating an 8% return.
b. $10,000 to be received every year, for the next five years.
Expected interest rate for similar investment is 10%
c. Is "a" an annuity problem or a simple present value problem?
d. is "b" an annuity or a simple present value problem?
5. Josh is seeking professional advice about where his breakeven
point is. He's told you that:
fixed costs= $20,000
variable costs= 33% of sales
the avg selling price is $10,000
a. As a % of sales, what is its variable or contribution margin?
b. If the avg. sale is $10,000 what is the c.margin/vehicle?
c. what is the breakeven volume in $ of revenue?
d. what is breakeven in units keeping in mind that no one wishes to
buy 2/3 or 1/5 of a car?
e. If fixed costs increased to $30,000 then what would breakeven be?
6. a. What is the formula usually used to describe the relationship
between fixed costs, variable or contribution margin, volume, and
profit?
b. Rewrite the formula above, to make it appropriate for breakeven calculations. |
