FIN 361- Company Y does not plow back any earnings and is expected
1. Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5 a share. If the current stock price is $40, what is the market capitalization rate? (Enter your answer as a percent rounded to 1 decimal place.)Market capitalization rate = ?2. Company Z-prime’s earnings and dividends per share are expected to grow by 5% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $10, the market capitalization rate is 8% and next year’s EPS is $15. What is Z-prime’s stock price?stock price= ?3..Pharmecology just paid an annual dividend of $1.35 per share. It’s a mature company, but future EPS and dividends are expected to grow with inflation, which is forecasted at 2.75% per year. The nominal cost of capital is 9.5%.What is Pharmecology’s current stock price?What would be Pharmecology’s current stock price using forecasted real dividends and a real discount rate?4. Phoenix Corp. faltered in the recent recession but is recovering. Free cash flow has grown rapidly. Forecasts made in 2016 are as follows:($ millions)20172018201920202021Net income1.02.03.23.74.0Investment1.01.01.21.41.4Free cash flow01.02.02.32.6Phoenix’s recovery will be complete by 2021, and there will be no further growth in free cash flow.a= Calculate the PV of free cash flow, assuming a cost of equity of 9%.b= Assume that Phoenix has 12 million shares outstanding. What is the price per share?c=If the net income for 2016 is $1 million, what is Phoenix’s P/E ratio?
