Stock corporations issue, Business and Finance Homework

    Question description

    FINC 5000
    Homework Assignment
    for Week 4:
    Chapter 7:
    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
    this stock?
    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:
      Company    PE
    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?
    6. (Preferred
    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
    preferred stock?
    7.(Efficient
    Market Hypothesis)  Define the EMH and
    explain its three forms.
    MUST SHOW ALL WORK…….

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