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FINMAN2: ASSIGNMENT # 6: STOCK VALUATION Note: Questions were obtained from various sources Ms. Reena Almonte Questions:

1. You intend to purchase Marigo common stock at PHP 50 per share, hold it for a year, & sell after a dividend of PHP 6 is paid. How much will the stock price have to appreciate for you to satisfy your required rate of return of 15% p.a.?

2. Pioneer’s preferred stock is selling for PHP 33 in the market & pays a PHP 3.60 annual dividend.

A. What is the expected rate of return on the stock? B. If an investor’s required rate of return is 10%, what is the value of the stock for that

investor? C. Should the investor acquire the stock?

3. The common stock of NCP paid PHP 1.32 in dividends last year. Dividends are expected to grow

at an 8% annual rate indefinitely.

A. If NCP’s current market price is PHP 23.50, what is the stock’s expected rate of return? B. If your required rate of return is 10.5%, what is the value of the stock for you? C. Should you make the investment?

4. Special Problem:

A firm has a beta of 1.50, the risk-free rate of return is 10%, & the market return is 14%. The company plans to pay a dividend of PHP 2.72 / share in 2013, & anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2009-2012 period, when the following dividends were paid:

Year Dividend per share (in PHP)

2012 2.52 2011 2.33 2010 2.16 2009 2.00

Notes: 1. The present time is December 31, 2012. 2. Use the nearest whole percentage point for the growth rate. Required: A. Calculate the value of the firm’s stock. B. Compute the value of the firm’s stock if beta increases to 1.75. C. Determine the value of the firm’s stock if beta decreases to 1.25.