1. Low Tech Company has an expected ROE of 10%. The dividend growth rate will be ________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

1. Low Tech Company has an expected ROE of 10%. The dividend growth rate will be

________ if the firm follows a policy of paying 40% of earnings in the form of dividends.

2. A preferred stock will pay a dividend of $2.75 in the upcoming year and every year

thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

3. You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $1.25 in dividends and $32 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 10% return.

4. Paper Express Company has a balance sheet which lists $85 million in assets, $40

million in liabilities, and $45 million in common shareholders’ equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90. What is Paper Express’s book value per share?

5. Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-­‐

free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company’s stock is 1.25. The market’s required rate of return on Sure’s stock is What is the intrinsic value of Sure’s common shares today?

If Sure’s intrinsic value is $21.00 today, what must be its growth rate?

6. High Tech Chip Company paid a dividend last year of $2.50. The expected ROE for next

year is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 60%, the dividend in the coming year should be

7. An analyst has determined that the intrinsic value of HPQ stock is $20 per share using

the capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is

8. Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming

year. Dividends are expected to decline at the rate of 2% per year. The risk-­‐free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Old Quartz Gold Mining Company has a beta of -­‐0.25. The intrinsic value of the stock is

9. Low Tech Chip Company is expected to have EPS of $2.50 in the coming year. The

expected ROE is 14%. An appropriate required return on the stock is 11%. If the firm has a dividend payout ratio of 40%, the intrinsic value of the stock should be

10. Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year.

Dividends are expected to grow at a rate of 10% per year. The risk-­‐free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of $90.00. What is the expected rate of return on equity for Risk Metrics?

What is the approximate beta of Risk Metrics’ stock?