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Chapter 9 OAES Assignment

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Chapter 9 OAES Assignment
Problem 9-1
DPS calculation. Warr Corporation just paid a dividend of $1.50 a share (that is,
D0=$1.50). The dividend is expected to grow 7 percent a year for the next 3 years and then
at 5 percent a year thereafter. What is the expected dividend per share for each of the next
5 years?
D
N
= D
0
(1 + g )
n
1
ST
Year, D1= 1.50 (1.07)
1
= $1.61
2
ND
Year, D2= 1.50 (1.07)
2
= $1.72
3
RD
Year, D3= 1.50 (1.07)
3
= $1.84
4
TH
Year, D4= 1.50 (1.07)
4
= $1.97
5
TH
Year, D5= 1.50 (1.07)
5
= $2.10
Problem 9-3
Constant growth valuation. Harrison Clothiers’ stock currently sells for $20 a share. It just
paid a dividend of $1.00 a share (that is, D0=$1.00). The dividend is expected to grow at a
constant rate of 6 percent a year. What stock price is expected 1 year from now? What is
the required rate of return?
K= (D/S) + g
={(1(1.06))/20} + 0.06
=11.3%
Since r
s
is greater than k,
P
1
= {$1(1.06)/0.113-0.06}
=$20

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Chapter 9 OAES Assignment Problem 9-1 DPS calculation. Warr Corporation just paid a dividend of $1.50 a share (that is, D0=$1.50). The dividend is expected to grow 7 percent a year for the next 3 years and then at 5 percent a year thereafter. What is the expected dividend per share for each of the next 5 years? DN = D0 (1 + g )n 1ST Year, D1= 1.50 (1.07)1 = $1.61 2ND Year, D2= 1.50 (1.07)2= $1.72 3RD Year, D3= 1.50 (1.07)3= $1.84 4TH Year, D4= 1.50 (1.07)4= $1.97 5TH Year, D5= 1.50 (1.07)5= $2.10 Problem 9-3 Constant growth valuation. Harrison Clothiers' stock currently sells for $20 a shar ...
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