Ch 7 -Hwk

10/15/23, 1:28 PM Chapter 7 Homework-Everardo Navarro Student: Everardo Navarro Instructor: Erdem Ucar Date: 10/15/23 Course: FIN320_54_Fall_2023 Assignment: Chapter 7 Homework 1. If you own 11,000 shares of stock of Nike and it pays a dividend of $0.23 per share, then what is the total dividend you will receive? Review Only Click the icon to see the Worked Solution (Formula Solution). The total dividend that you will receive is $ 2530 . (Round to the nearest dollar.) 2. Assume Evco, Inc. has a current stock price of $53.61 and will pay a $2.05 dividend in one year; its equity cost of capital is 12%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? Review Only Click the icon to see the Worked Solution (Formula Solution). We can expect Evco stock to sell for $ 57.99 . (Round to the nearest cent.) 3. Achi Corp. has preferred stock with an annual dividend of $3.12. If the required return on Achi's preferred stock is 7.8%, what is its price? (Hint: For a preferred stock, the dividend growth rate is zero.) Review Only Click the icon to see the Worked Solution (Formula Solution). Achi's stock price will be $ 40.00 . (Round to the nearest cent.) 4. Ovit, Inc. has preferred stock with a price of $18.01 and a dividend of $1.53 per year. What is its dividend yield? Review Only 1 Click the icon to see the Worked Solution (Formula Solution). The dividend yield is 8.50 %. (Round to two decimal places.) 1: Review Worked Solution (Formula Solution) To calculate the dividend yield, use the following formula: Div, Dividend Yield = P_o Therefore, Dividend Yield = $18.01 =0.0850=8.50% The dividend yield is 8.50%. 5. Krell Industries has a share price of $22.38 today. If Krell is expected to pay a dividend of $0.99 this year and its stock price is expected to grow to $24.06 at the end of the year, what is Krell's dividend yield and equity cost of capital? Review Only Click the icon to see the Worked Solution (Formula Solution). The dividend yield is 4.4 %. (Round to one decimal place.) The capital gain rate is 7.5 %. (Round to one decimal place.) The total return is 11.9 %. (Round to one decimal place.) 6. Summit Systems will pay a dividend of $1.67 this year. If you expect Summit's dividend to grow by 6.4% per year, what is its price per share if the firm's equity cost of capital is 10.2%? Review Only Click the icon to see the Worked Solution (Formula Solution). The price per share is $ 43.95 . (Round to the nearest cent.) 7. Laurel Enterprises expects earnings next year of $4.45 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 9%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 3.6% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? Review Only Click the icon to see the Worked Solution (Formula Solution). The current stock price will be $ 49.44 . (Round to the nearest cent.) https://xlitemprod.pearsoncmg.com/apifv1/print/highered 112

10/15/23, 1:28 PM Chapter 7 Homework-Everardo Navarro 8. Which of the following will be a source of cash flows for a shareholder of a certain stock? |. Sale of the shares at a future date Il. The firm in which the shares are held paying out cash to shareholders in the form of dividends lll. The firm in which the shares are held increasing the total number of shares outstanding through a stock split ~A. lonly . B. llonly '¥C. land |l . D. lland Il 9. Afirm can either pay its earnings to its investors, or it can keep them and reinvest them. ¥ True False 10. Which of the following is NOT a way that a firm can increase its dividend? ' A. by decreasing its shares outstanding . B. by increasing its dividend payout rate . C. by increasing its earnings (net income) "¥D. by increasing its retention rate 11. Which of the following statements is FALSE? ii]%? A. According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate. ' B. Afirm can only pay out its earnings to investors or reinvest their earnings. . C. Estimating dividends, especially for the distant future, is difficult. ~ D. Successful young firms often have high initial earnings growth rates. 12. Spacefood Products will pay a dividend of $2.40 per share this year. It is expected that this dividend will grow by 3% per year each year in the future. What will be the current value of a single share of Spacefood's stock if the firm's equity cost of capital is 9%? MA. $40.00 . B. $26.00 . C. $28.00 . D. $36.00 13. Which of the following will NOT increase a company's dividend payments? . A. ltcanincrease its earnings. ' B. It can decrease the number of shares outstanding. _ C. ltcanincrease its dividend payout rate. CQ@V D. It can issue more shares. https://xlitemprod.pearsoncmg.com/api/v1/print/highered 2/2