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Corporate Finance Assignment Analysis

This document contains an assignment submission for a corporate finance course. It includes 11 questions analyzing stocks using the dividend discount model. The questions calculate stock prices, dividend growth rates, and returns on equity given various inputs like dividends, growth rates, and returns. For example, question 1 calculates the price of a stock after 15 years given initial dividend of $1.6, growth rate of 6%, and required return of 12%. The other questions involve similar calculations to derive unknown variables in the dividend discount model.

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10 views6 pages

Corporate Finance Assignment Analysis

This document contains an assignment submission for a corporate finance course. It includes 11 questions analyzing stocks using the dividend discount model. The questions calculate stock prices, dividend growth rates, and returns on equity given various inputs like dividends, growth rates, and returns. For example, question 1 calculates the price of a stock after 15 years given initial dividend of $1.6, growth rate of 6%, and required return of 12%. The other questions involve similar calculations to derive unknown variables in the dividend discount model.

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Waqaar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

ASSIGNMENT  

NO 2 Corporate Finance
 
BY 
Adnan Hussain
ROLL NO 141
F 2 (FANANCE)
An assignment submitted to the IBMS, agriculture university Peshawar in partial
fulfillment of the requirements for the current semester.
Program
Bachelor of business administration
(IBMS)
 

 
 
 
 
 
INSTITUTE OF BUSINESS MANAGEMENT SCIENCES  
FACULTY BUSINESS AND ECONOMIC
Question No 1
Given
Dividend = 1.6
Return = 12
Growth = 6%
Dividend growth model
PVo = D1/(return – growth)
= 1.6/ (.12 -0.06)
= 26.66
After 15 years the price of the stock
D1 = 1.6, D2 = 1.696 D3 = 1.70176 D4 = 1.8038656 D5 = 1.912097536 D6 = 2.02682 D7
2.148433 D8 = 2.277339 D9= 2.413393 D10 = 2.55882 D11 = 2.71235 D12 = 2.8755 D13 = 3.04803
D14 = 3.231 D15 = 3.4248
Po = D1(1+g)/(1+r) + D2/(1+r)^2………………Dn//(1+r)^n
= 1.6/(1+.12) + 1.696//(1+.12)^2 +1.701761/(1+.12)^3 + 1.80386561/(1+.12)^4 +
1.912097536/(1+.12)^5 + 2.02682/(1+.12)^6 + 2.148433/(1+.12)^7 + 2.277339/(1+.12)^8 +
2.413393/(1+.12)^9 + 2.55882/(1+.12)^10 + 2.71235/(1+.12)^11 + 2.8755/(1+.12)^12 +
3.04803/(1+.12)^13 + 3.231/(1+.12)^14 + 3.4248/(1+.12)^15
Using excel for summation and calculation
The discounted dividend 10.34716
Pv = 10.351/(.12 -0.06)
= 172.5167
Question NO 2
Given that
Dividend = $ 2.50
Growth = 5 %
Stock price = 48
From dividend growth model
PVo = D1/(return – growth)
Return = D1 / Pv + growth
= $ 2.50/48 + .05
= 0.102083
= 10.21%
Question No 3
Given
Dividend = $ 3.6
Dividend growth 4.5%
Return = 11%
Stock price = ?
From dividend growth model
PVo = D1/(return – growth)
= 3.6/(.11-.045)
= 55.38462
Question no 4
Given
Return = ?
Price has not been given for essence we take it from internet which is 54.06
Growth = 6.5 %
Dividend = 3.6
From dividend growth model
Return = D1 / (Pv + growth)
= 3.6/(54.06 +0.065)
= 0.066513
= 6.67%
Question NO 5
Given
Growth = 0
Return = 10%
Dividend = 11
Stock price =?
From dividend growth model
PVo = D1/(return – growth)
= 11/(.1-0)
= 110

Question No 6
Given
Dividend = 6.50
Stock price = 113
Return =?
Return = D1/Stock price
= 6.50/113
= 0.057522
Question No 7
Given
Dividend = 3.5
The growth in term of return is not a round and have been fluctuated hence we will take
Geometric mean of the return which is of three periods hence will have a one geometric mean
which will be more reliable than arithmetic mean
R1 = 16% R2 = 14% R3 = 11%
Return’s GM = (.16*.14*11)^1/3
= 0.082133
= 8.2%
Now from dividend discount model
Pv = D1/ return
= 3.6/.083
= 43.37349
Question no 8
Givens
The dividend payment is decreasing instead of increasing to make it stationary we will have to
make the A.M.
Dividend = (8+7+5+2)/4
= 22/4
= 5.5
Growth = 5%
Return = 11%
From dividend growth model
PVo = D1/(return – growth)
= 5.5/(.11-05)
= 91.66667
Question No 9
Given
Growth = 25%
Dividend = 3.1
Return 13
PVo = D1/(return – growth)
= 3.1/(.13-.25)
= 25.8333
Question No 10
given
the growth increase to 30% and then decrease to 7 hence we will take to mean
31/2 = 15.5
Dividend =
PVo = D1/(return – growth)
= 1.45/(.13-.15)
= 72.31
Question No 11
Given =
G.m for growth = (.25*25*25*.06)^1/4 = 11%
Dividend = 1.05
Return = 12%
PVo = D1/(return – growth)
= 1.05/(.12-.11)
= 105

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