FIN 515 WEEK 4 HOMEWORK ASSIGNMENT

(7-2)

Constant Growth Valuation

Boehm Incorporated is expected to pay a per share dividend at the end of this year (i.e., D1 ). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm's stock?

For this problem we can use the formula from the book Pd1(R-G) to find the price. We just need to plug in the values... so, 1.5/(8% [15-7]). The value is .

(7-4)

Preferred Stock Valuation

Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of 5 at the end of each year. The preferred sells for 50 a share. What is the stock's required rate of return?

From the book we discover that we simply need...