FINANCE-FINA Company is expected to pay $4 dividend per share at the end of this year

QUESTION

1. FINA Company is
expected to pay $4 dividend per share at the end of this year. FINA’s beta is 1.2. Three
months US Treasury bill yield is 2 %, and the return on the S&P 500 index
is 12 %. FINA Company is expected to growth at 6% per year forever. How much
should be the value of FINA’s shares? (2 points)

If
FINA shares are selling for $45 in the market, would you buy it? (1 point)

2. FINA Company paid $4
dividend per share last year. The cost of capital for FINA is 10 % and the
company is expected to growth at 6% per year forever. How much should be the
value of FINA’s shares? (2 points)

If FINA shares are selling for
$110 in the market, is it over-valued or under-valued? Should you buy it? (1 point)

3. FINA preferred stocks
are currently selling for $70/share. The preferred stocks pay a dividend of
$3/share. What is the return on FINA preferred stocks? (2 points)

4. FINA preferred stocks
pay a dividend of $3/share. Investors are requiring 5% return on the preferred
stocks. What is the fair value of FINA preferred stocks? (2 points)

ANSWER:

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