Stock valuation problems

1. Suppose you are planning to buy XYZ company stock and from the analyst report suggests that the
company is expected to pay a Rs.2 dividend in one year, and you believe that you can sell the stock
for Rs.14 at that time. If you require a return of 20% on investments of this risk, what should be the
present value of the stock?
2. The equity owners of a firm ABC ltd. need a return of 12%. The current performance of the firm leads
to believe that a dividend of Rs.5 would be expected and after a year stock price would be Rs.20.
- If the current price of the stock is Rs. 22, do you think the stock is worth buying?
- What Maximum price you can think up for buying this stock now?
- How much is the capital gain and the dividend yield?
3. The share of M&M is currently trading at Rs.700. Analysts have projected the stock price will move
upto Rs. 800 at the end of the year during which a dividend of Rs. 25 per stock will be paid to the
common stock holder.
-What rate of return is implied by the market for M&M share?
-Segregate the expected return into dividend yield and capital gain for this stock.
4. Suppose you are planning to buy XYZ company stock and the analyst report suggests that the
company is expected to pay a Rs.2 dividend in 1st year, Rs. 2.10 in 2nd year and you believe that you can
sell the stock for Rs.14.70 at the end of 2nd year. If you require a return of 20% on investments of this
risk, what should be the present value of the stock?
5. Suppose a stock is expected to pay a Rs.50 dividend every quarter and the required return is 10% with
annual compounding. What is the present value of the stock?
6. Suppose a stock is expected to pay a Rs. 0.50 dividend every quarter and the required return is 10%
with quarterly compounding. What is the present value of the stock?
7. Suppose a stock is expected to pay a $1.82 dividend every year for ever and the required return is 16
% with annual compounding. What is the present value of the stock?
8. Tata Motor just paid a dividend of Rs.50 per share. It is expected to increase its dividend by 2% per
year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling
for?
9. Keeping all other inputs same suppose an analyst assumes that the Tata Motors expected to increase
its dividend by 4% per year, how much should the stock be selling for?
10. Suppose ABC corporate is expected to pay a Rs.2 dividend in one year. If the dividend is expected to
grow at 10% per year and the required return is 20%, what is the price?
11. Gordon Growth Company is expected to pay a dividend of $4 next period, and dividends are
expected to grow at 6% per year. The required return is 16%.What is the present value of the stock?
What is the stock value expected to be in year 4?
12. Suppose the dividend of a super normal growth firm are expected to grow at 30% for 3 years and
afterwards the growth rate falls to 10% rest of the periods FOR REST OF THE LIFE OF THE COMPANY. If
the stockholders required rate of return is 16% and the last dividend paid by company was $1.82.
Estimate the present value of such a non-constant (supernormal) growth company.