for Week 4:
For Week 4,
please turn in the answers to the following questions:
1. What are the two kinds of stock corporations
issue to finance their assets? List the main characteristics of each.
2. (common stock
valuation, constant growth) You’ve discovered a company that is expected to pay
$2.25 dividend at the end of this year.
The dividend is expected to grow forever at a constant rate of 4% a
year. The required rate of return for this stock is 8%. Given these conditions,
what is the estimated market value per share of this stock?
3. (common stock
valuation, non-constant growth) You’ve discovered a company that is expected to
pay $2.25 dividend at the end of this year. You estimate the company’s dividends
will grow 10% next year and then at a constant rate of 4% thereafter. The required rate of return for this stock is
8%. Given these conditions, what is the estimated market value per share of
4. (Issues with
the dividend growth model) What are three issues that must be dealt with when
evaluating stocks with the dividend growth model?
5. (The PE
model) Imagine you are estimating the
market value of Wild West Oil Company’s stock, which is not publicly traded. So
you decide to use the PE model for your valuation. You observe the following PE Ratio
comparisons for your project:
Ratio (from the Internet)
a. Exxon-Mobil 10
b. Chevron 11
c. ConocoPhillips 14
a. What is the implied “appropriate”
PE for Wild West Oil Company?
b. Assuming Wild West Oil Company’s EPS is
= $3.10, what is your estimate for the market
value of the company’s stock?
stock valuation) You have discovered a company which has issued preferred stock
with a stated annual dividend of 6% of its par value of $100. The average yield on preferred stock of this
type among other companies is 7%. Given
these conditions, what is your estimate of the market value of this company’s
Market Hypothesis) Define the EMH and
explain its three forms.
MUST SHOW ALL WORK…….