fin 515 week 4
putul1.
Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in one year in order to justify its current price?
4.
Krell Industries has a share price of $22 today. If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital?
Applying the DividendDiscount Model
5.
NoGrowth Corporation currently pays a dividend of $2 per year, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year?
6.
Summit Systems will pay a dividend of $1.50 this year. If you expect Summit’s dividend to grow by 6% per year, what is its price per share if its equity cost of capital is 11%?
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7.
Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8%, and its dividends are expected to grow at a constant rate.
· a. What is the expected growth rate of Dorpac’s dividends?
· b. What is the expected growth rate of Dorpac’s share price?
12.
Procter & Gamble will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to the dividenddiscount model, what is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 8%?
19.
Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:





 





 
Year  1  2  3  4  5  
FCF ($ in millions)  53  68  78  75  82  
After then, the free cash flows are expected to grow at the industry average of 4% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14%:
· a. Estimate the enterprise value of Heavy Metal.
· b. If Heavy Metal has no excess cash, debt of $300 million, and 40 million shares outstanding, estimate its share price.
Chapter 12
1.
Suppose Pepsico’s stock has a beta of 0.57. If the riskfree rate is 3% and the expected return of the market portfolio is 8%, what is Pepsico’s equity cost of capital?
3.
Aluminum maker Alcoa has a beta of about 2.0, whereas Hormel Foods has a beta of 0.45. If the expected excess return of the marker portfolio is 5%, which of these firms has a higher equity cost of capital, and how much higher is it?
26.
Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has $100 million in outstanding debt. Suppose Unida’s equity cost of capital is 15%, its debt cost of capital is 8%, and the corporate tax rate is 40%.
· a. What is Unida’s unlevered cost of capital?
· b. What is Unida’s aftertax debt cost of capital?
c. What is Unida’s weighted average cost of capital?
 7 years ago
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NOT RATED1.Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the …
7 years agofinance
NOT RATEDThe Dividend Discount Model
1.Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell …
7 years ago1. Assume Evco, Inc.,
NOT RATED1.
Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the …7 years agoAssume Evco, Inc.,
NOT RATED1.
Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the …6 years ago