1. Woidtke Manufacturing’s stock currently sells for $20 a share. The stock just

1. Woidtke Manufacturing’s stock currently sells for $20 a share. The stock just paid a dividend of $1.00 a share (i.e., D0 = $1.00), and the dividend is expected to grow forever at a constant rate of 10% a year. What stock price is expected 1 year from now? What is the required rate of return on Woidtke’s stock?2. Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return?3. A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price?4. Assume that the average firm in your company’s industry is expected to grow at a constant rate of 6% and that its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this year and 25% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D0) was $1, what is the value per share of your firm’s stock?5. The standard deviation of stock returns for Stock A is 40%. The standard deviationof the market return is 20%. If the correlation between Stock A and the market is0.70, then what is Stock A’s beta?6. The beta coefficient of an asset can be expressed as a function of the asset’s correlation with the market as follows: bibi = ρiMσiσMa.

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