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Mr. Mendoza Essay

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7.2 ) Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of the year.?

The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock is 15%. What is the value per share of the company’s stock?

(1.50 X 1) + the 7% growth rate and get 1.5 (1.07) = 1.605

(1.50)(1.07) /(.15 – .07) = 1.605 / .08 = 20.0625 or $20.63

7-4). Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5?

Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s

required rate of return?

$5/$50 = 10%

7.5). A company currently pays a dividend of $2 per share. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk fre rate is 7.5%, and the market risk is 4%. What is your estimate of the stock’s current price.

9-2

9-4) Burnwood Tech plans to issue some $60 par preferred stock with a 6% dividend. The stock is selling on the market for $70 and Burnwood must pay flotation costs of 5% of the market price. What is the cost of the preferred stock?

=

= 5.41%

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