Question

a. Favorita Candy’s stock is expected to earn $3.40 per share this year. Its

P/E ratio is 20. What price is the stock price? (Round your answer to 2 decimal places.)

Preferred Products has issued preferred stock with an annual dividend of $8.25 that will be paid in perpetuity.

a. If the discount rate is 11.00%, at what price should the preferred sell? Round your answer to 2 decimal places.

b. At what price should the stock sell 1 year from now? Round your answer to 2 decimal places.

c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock?

Dividend yield %

Capital gains yield %

Expected rate of return %

Arts and Crafts, Inc. will pay a dividend of $2 per share in 1 year. It sells at $40 a share, and firms in the same industry provide an expected rate of return of 12%. What must be the expected growth rate of the company’s dividends? 

Steady As She Goes Inc. will pay a year-end dividend of $3.40 per share. Investors expect the dividend to grow at a rate of 5% indefinitely.

a. If the stock currently sells for $34.00 per share, what is the expected rate of return on the stock?

b. If the expected rate of return on the stock is 17.50%, what is the stock price?

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $2 per share dividend in a year. The discount rate is 9%.

a. What is the price-earnings ratio of the company?

b.What would the P/E ratio be if the discount rate were 5%? Round your answer to 2 decimal places.

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