5.4 Application of Stock Price Valuation from Fundamentals of Corporate Finance

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Background Information

In this assignment, you will complete problems using Excel to learn methods of calculating stock prices. The methods that will be covered are zero-growth dividends, constant-growth dividends, and two-stage dividend growth. You will apply concepts of the time value of money as you complete these calculations. These calculation tools will help solidify your understanding of the impact that a company’s dividend policy has on its stock price.

  1. In your textbook, Fundamentals of Corporate Finance, review:
    1. Chapter 8, “Stock Valuation”
  2. Review the Chapter 8 – Stock Valuation.ppt PowerPoint file.
  3. Using Excel, complete the following problems in the textbook:
    1. Constant-Growth Dividends: Problems 1, 2, 3, 4, and 6 on page 265
    2. Zero-Growth Dividends: Problem 7 on page 265 (an annuity) and Problem 8 on page 266 (a perpetuity)
    3. Two-Stage Dividend Growth: Problem 25 on page 267