Self-Test Problems

(Solutions in Appendix)

  1. Learning Goal 4 Globe icon

    ST7–1 Common stock valuation Perry Motors’ common stock just paid its annual dividend of $1.80 per share. The required return on the common stock is 12%. Estimate the value of the common stock under each of the following assumptions about the dividend:

    1. Dividends are expected to grow at an annual rate of 0% to infinity.

    2. Dividends are expected to grow at a constant annual rate of 5% to infinity.

    3. Dividends are expected to grow at an annual rate of 5% for each of the next 3 years, followed by a constant annual growth rate of 4% in year 4 to infinity.

  2. Learning Goal 5

    ST7–2 Free cash flow ...

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