Corporate Finance Assignment
U NIVERSITY OF L UXEMBOURG , L UXEMBOURG S CHOOL OF F INANCE
Corporate Finance
Master in Economics and Finance
2nd Assignment - Stock valuation + Cost of capital
Due on 10/3/2014
E XERCISE 1
Starr Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. If investors require a 12 percent return on the stock, what is the current price? What will the price be in three years? In 15 years? E XERCISE 2
You have found the following stock quote from RJW Enterprises, Inc., in the financial pages of today’s newspaper.
What is the annual dividend? What was the closing price for this stock that appeared in yesterday’s paper? If the company currently has 25 million shares of stock outstanding, what was the net income for the most recent four quarters?
1
E XERCISE 3
Janicek Corp. is experiencing rapid growth. Dividends are expected to grow at a 30 percent rate for the next three years, 17 percent over the following year, and then 7 percent per year thereafter. If the required return is 10 percent and the company just paid a $2.40 dividend, what is the current share price?
E XERCISE 4
The Stambaugh Corporation currently has earnings per share of $7.50. The company has no growth and pays out all earnings as dividends. It has a new project which will require an investment of $1.10 per share in one year. The project is only a two-year project, and it will increase earnings in the two years following the investment by $2.30 and $2.60, respectively.
Investors require a 11 percent return on Stambaugh stock.
1. What is the value per share of the company’s stock assuming the firm does not undertake the investment opportunity?
2. If the company does undertake the investment, what is the value per share now?
3. Again, assume the company undertakes the investment. What will the price per share be four years from now?
E XERCISE 5
Filer Manufacturing has
Corporate Finance
Master in Economics and Finance
2nd Assignment - Stock valuation + Cost of capital
Due on 10/3/2014
E XERCISE 1
Starr Co. just paid a dividend of $2.15 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. If investors require a 12 percent return on the stock, what is the current price? What will the price be in three years? In 15 years? E XERCISE 2
You have found the following stock quote from RJW Enterprises, Inc., in the financial pages of today’s newspaper.
What is the annual dividend? What was the closing price for this stock that appeared in yesterday’s paper? If the company currently has 25 million shares of stock outstanding, what was the net income for the most recent four quarters?
1
E XERCISE 3
Janicek Corp. is experiencing rapid growth. Dividends are expected to grow at a 30 percent rate for the next three years, 17 percent over the following year, and then 7 percent per year thereafter. If the required return is 10 percent and the company just paid a $2.40 dividend, what is the current share price?
E XERCISE 4
The Stambaugh Corporation currently has earnings per share of $7.50. The company has no growth and pays out all earnings as dividends. It has a new project which will require an investment of $1.10 per share in one year. The project is only a two-year project, and it will increase earnings in the two years following the investment by $2.30 and $2.60, respectively.
Investors require a 11 percent return on Stambaugh stock.
1. What is the value per share of the company’s stock assuming the firm does not undertake the investment opportunity?
2. If the company does undertake the investment, what is the value per share now?
3. Again, assume the company undertakes the investment. What will the price per share be four years from now?
E XERCISE 5
Filer Manufacturing has