Exercises

1. Last year, UCC Corporation paid a P1.50 dividend. The investors of UCC expect that dividend will
grow by 5% each year forever. If the required return on the stock investment is 15%, what should be
the price of the stock today?

2. UCC is expected to pay a P1.50 dividend next year and investors expect that dividend to grow by 5%
each year forever. What should be the price of the stock of UCC in 5 years if the required return on
the stock investment is 15%,?

3. For the coming year 2020, RLT Corporation is expecting to pay a dividend of P2.78. For the next
three years, RLT’s dividend is expected to grow by 4% each year. After that the company will never
pay another dividend ever again. If your required return on the stock investment is 10%, what should
the stock sell for today?

4. Sambokojin normally pays out 30% dividends from of its earnings. The previous year, earnings
available for common stockholders were P256 million. Sambokojin’s equity was P678 million. What
is the growth rate?

5. At the start of the year, the CEO of Buffet 101 is planning to purchase WEB stock and to hold it for 1
year. By the end of the year, the CEO is expecting to receive a dividend of P5.50 and to sell the stock
for P154. The required rate of return of WEB stock is 16 percent. How much should be the purchase
price of the stock?

6. The current price of Zebar is P32.00 and the current dividend is P.60. What is an investor's required
rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8
percent?

7. Fast Wheels, Inc. expects to pay an annual dividend of P0.72 next year. Dividends have been growing
at a compound annual rate of 6 percent and are expected to continue growing at that rate. What is the
value of a share of stock of Fast Wheels to an investor who requires a 14 percent rate of return?

8. What is the current value of the common stock of SCHP Corporation if you know the current
dividend yield is 6.14%, the PE is 16, and the annual dividend is P1.35?

9. What is the current value of a share of Chyrox if its current dividend is P1.50 and dividends are
expected to grow at an annual rate of 20 percent for the next 5 years? Assume the investor has a
required rate of return of 15 percent and expects to sell the security in 5 years for P72.

10. The earnings and dividends of Nebula Computer Co. are expected to grow at an annual rate of 15
percent over the next 4 years and then slow to a constant growth rate of 8 percent per year. Nebula
currently pays a dividend of P0.50 per share. What is the value of Nebula stock to an investor who
requires a 14 percent rate of return?