Jon R. Taylor

Jon R. Taylor

PhD Finance Student

Stock Valuation Questions

2 minute read

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Stock Valuation Problems - examples from my Stock Valuation lecture

  1. XYZ, Inc just paid an annual dividend of $1.98 per share on its common stock. Future dividends are expected to grow at a rate of 5 percent per year, indefinitely. If their required rate of return is 11 percent, what should be the current share price for the stock?

  2. FooBar, Inc. just paid an annual dividend of $1.37 per share on its common stock. Dividends are expected to grow at a rate of 11% next year, 12% the year after, and 7% the year after that; subsequent dividends are expected to grow at 4% per year thereafter. If their required rate of return is 8%, what price should this stock sell for?

  3. The Atlantic Wave Company is experiencing a declining market. Its last dividend declined to a level of $1.20 per share; the next dividend is expected to decline by another 7%, and subsequent dividends are expected to decline at a rate of 12% per year for the foreseeable future. If the required rate of return for this firm is 13%, what is the stock worth?

  4. IJ Corp. just paid an annual dividend of $1.20 per share. You expect the next three dividends to continue at a level of $1.20 per share, but you also expect all subsequent dividends to grow indefinitely at a rate of 5% per year. The rate of return on this stock is 11%. What is the stock worth?

  5. The Numerator Corp. has announced that due to necessary capital investments, it will not be able to pay any dividends for the next three years. Starting in the fourth year, dividends will be set at $1.10 per share, per year, indefinitely. The required rate of return on the stock is 14%. What is the value of the stock today?

  6. The Cupcake Co. plans on paying a dividend of $2.22 per share at the end of each year for the next two years; after that, it will suspend dividends for a year to build up its cash fund. After that, it plans on paying a dividend of $1.01 per year in the fourth year, and plans on increasing that dividend at a rate of 7% per year indefinitely. Their rate of return is 9% per year. What is the stock worth today?