3. The Market Value of Listed Stocks

Based on his personal analysis John expects ABC stock to pay a dividend of € 15 one year from now and € 18 the year thereafter. After that he expects that the dividend will be € 20 (at the end of year three) and will have a constant growth rate of 4 % for the years thereafter. What is the value of the ABC share today according to the personal analysis of John if the cost of equity is 12.5 % per year?

A listed company has just paid a dividend of € 8 per share. Because of the increase in demand for its products, the dividend is expected to grow each year by 5% per year. The rate of return required by investors in the stock is 10%. What is the current market value of the stock?

What is the expected market value of the stock from question 2 in exactly one year’s time (directly after the dividend payment)? All other information remains unchanged.

For a listed company, it is expected that future net income will remain at the level of last year, when reported net income was € 200 million. The pay-out ratio of the company is 100%. The corporation has four million shares outstanding with a par value of € 10 each. The cost of equity is 10%. What will be the market value of the stock at the moment in time just before the dividend will be paid?

A company reports earnings per share of € 10 for last year. The company uses a fixed pay-out ratio of 70% for the dividend. The growth rate of the dividend payments is 5% per year. The next dividend (for the current year) will be paid exactly one year from now. What is the return on reinvested capital of this company?

A stock has, directly after the dividend payment of € 2 for the last financial year, a price of 
€ 21 on the stock market. The market expects dividend payments to grow by 5% per year. Calculate the rate of return that stock owners require on their investment in the stock.

A listed company expects a strong growth of earnings per share for the next three years (see table below). As from year 4 this growth will stabilize to an expected fixed growth rate of 5% per year. In order to finance the strong growth, the pay-out ratio for the first two years will be a mere 20%. Starting in year 3, the pay-out ratio will rise to 80%. Information needed for the valuation is included in the table above (amounts are per share). What is the current market value of the stock when stock owners require a rate of return of 10%?

For a listed company, it is expected that future net income will remain at the level of last year, when reported net income was € 400 million. The pay-out ratio of the company is 100%. The corporation has 10 million shares outstanding with a par value of € 100 each. The next dividend will be paid exactly one year from now. The cost of equity is 10%. What is the current total market value of equity of this company?