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Module 11 Critical Thinking Assignment Stock Valuation and Weighted Average Cost of Capital (WACC) Problem 11-1: Market price Chapter 8 A firm has SAR 5,000 preferred stock that pays a dividend of 5%. What is the market price for the stock if the required rate of return is 7%? Problem 11-2: Market value Chapter 8 PQR Corporation preferred stock is selling for SAR 2,000 per share and pays an annual dividend of SAR 160 per share. If the investor requires a return of 7%, what is the appropriate market value for the shares? Problem 11-3: Stock value Chapter 8 Dinosaur Corporation’s common stock paid a dividend of SAR 360 last year and is expected to grow indefinitely at a rate of 7%. If you can achieve a 10% return on equity, what is the value of the stock? Problem 11-4: Growth rate Chapter 8 If a firm’s return on equity is 17% and management plans to retain 40% of earnings for investment purposes, what will be the firm’s growth rate? Problem 11-5: Rate of return Chapter 8 STU Corporation paid a dividend of SAR 400 last year and the shares are selling for SAR 10,000 per share. The dividend is expected to grow at 5% indefinitely. What is the stock’s expected rate of return? Problem 11-6: Return on preferred stock Chapter 9 Rodeo Corporation is planning to sell new preferred stock paying an 8% dividend on an SAR 5,000 face value. Flotation costs will be 5% of the current market price of SAR 6,000 per share. What is the rate of return on the new preferred stock?