Stock Values and Growth Opportunities1. Stock Values

The Brennan Co. just paid a dividend of $1.40 per share on

its stock. The dividends are expected to grow at a constant rate of 6% per year

indefinitely. If investors require a 12% return on the Brennan Co. stock, what

is the current price? What will the price be in three years? In 15 years?

2. Growth Opportunities

California Real Estate, Inc. expects to earn $110 million

per year in perpetuity if it does not undertake any new projects and returns

all the earnings as dividends to the shareholders. The firm has an opportunity

to invest $12 million today and $7 million in one year in real estate. The new

investment will generate annual earnings of $10 million

in perpetuity, beginning two years from today. The firm has

20 million shares of common stock outstanding, and the required rate of return

on the stock is 15%.

(a) What is the per-share stock price if the firm does not

undertake the new investment?

(b) What is the per-share present value of the investment?

(c) What is the per-share stock price if the firm undertakes

the investment?

Stock Values and Growth Opportunities1. Stock Values

The Brennan Co. just paid a dividend of $1.40 per share on

its stock. The dividends are expected to grow at a constant rate of 6% per year

indefinitely. If investors require a 12% return on the Brennan Co. stock, what

is the current price? What will the price be in three years? In 15 years?

2. Growth Opportunities

California Real Estate, Inc. expects to earn $110 million

per year in perpetuity if it does not undertake any new projects and returns

all the earnings as dividends to the shareholders. The firm has an opportunity

to invest $12 million today and $7 million in one year in real estate. The new

investment will generate annual earnings of $10 million

in perpetuity, beginning two years from today. The firm has

20 million shares of common stock outstanding, and the required rate of return

on the stock is 15%.

(a) What is the per-share stock price if the firm does not

undertake the new investment?

(b) What is the per-share present value of the investment?

(c) What is the per-share stock price if the firm undertakes

the investment?

Stock Values and Growth Opportunities1. Stock Values

The Brennan Co. just paid a dividend of $1.40 per share on

its stock. The dividends are expected to grow at a constant rate of 6% per year

indefinitely. If investors require a 12% return on the Brennan Co. stock, what

is the current price? What will the price be in three years? In 15 years?

2. Growth Opportunities

California Real Estate, Inc. expects to earn $110 million

per year in perpetuity if it does not undertake any new projects and returns

all the earnings as dividends to the shareholders. The firm has an opportunity

to invest $12 million today and $7 million in one year in real estate. The new

investment will generate annual earnings of $10 million

in perpetuity, beginning two years from today. The firm has

20 million shares of common stock outstanding, and the required rate of return

on the stock is 15%.

(a) What is the per-share stock price if the firm does not

undertake the new investment?

(b) What is the per-share present value of the investment?

(c) What is the per-share stock price if the firm undertakes

the investment?

The Brennan Co. just paid a dividend of $1.40 per share on

its stock. The dividends are expected to grow at a constant rate of 6% per year

indefinitely. If investors require a 12% return on the Brennan Co. stock, what

is the current price? What will the price be in three years? In 15 years?

California Real Estate, Inc. expects to earn $110 million

per year in perpetuity if it does not undertake any new projects and returns

all the earnings as dividends to the shareholders. The firm has an opportunity

to invest $12 million today and $7 million in one year in real estate. The new

investment will generate annual earnings of $10 million

in perpetuity, beginning two years from today. The firm has

20 million shares of common stock outstanding, and the required rate of return

on the stock is 15%.

(a) What is the per-share stock price if the firm does not

undertake the new investment?

(b) What is the per-share present value of the investment?

(c) What is the per-share stock price if the firm undertakes

the investment?