finance-The common stock of Ridgeway Properties will pay an annual

QUESTION

1.
The common stock of Ridgeway Properties will pay an annual
dividend of $2.70 one year from now. The company increases the dividends by 4
percent annually. Your required return on this stock is 13 percent. Assume that
you purchase the stock today and sell it five years from now. What will be the
dollar amount of your capital gain for those five years?
a. $3.75

2.
Sander’s Supplies has paid a constant dividend of $2.15 a share
for the past 20 years. Yesterday, the firm announced that the dividend will
increase next year by 5 percent and will stay at the level for three years,
after which time the dividends will increase by 4 percent annually. The
required return on this stock is 9 percent. What is the current value per
share?

3.
Capello’s Deli traditionally pays an annual dividend of $1.65 per
share. The firm is projecting dividends of $1.80 and $2.05 over the next two
years, respectively. After that, the company expects to pay a constant dividend
of $2.25 a share. What is the maximum amount you are willing to pay for one
share of this stock if your required return is 10 percent?

4.
The Jones Brothers announced today that its next annual dividend
will be $2.00 per share. After that dividend is paid, the company expects to
encounter some financial difficulties and is going to suspend dividends for 10
years. After that a constant dividend of $1.50 per share will be paid annually.
The market rate of return on this stock is 12 percent. What is the current
value of this stock given this announcement?

5.
B&T, Inc. is expected to pay its first annual dividend five
years from now. That payment will be $3.10 a share. Starting in year six, the
company will increase the dividend by 2 percent per year. The required return
is 15 percent. What is the value of this stock today?

6.
Jon’s Catering is growing at a very fast rate. As a result, the
company expects to increase its dividend to $.45, $.95, $1.60, and $2.15 over
the next four years, respectively. After that, the dividend is projected to
increase by 6 percent annually. The last annual dividend the firm paid was $.30
a share. What is the current value of this stock if the required return is 17
percent?

ANSWER:

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