1. Calvert paid a dividend of $2.10/share and earned $4.75/share last year. If Calvert can earn 10% after tax on new investments, how fast can it grow its net income in the future? (Your answer should be a % carried to 1 place.)

Sol

2. You expect Procter & Gamble will pay a dividend of $7.8 billion and repurchase $7.3 billion of its common shares next year (Year 1) with both expected to grow 5% in Year 2 and 4% in Year 3. If you expect P&Gs market cap will be $370 billion at the end of Year 3, and you have calculated the cost of equity to be 8.0%, what do you estimate the true value of the companys net worth to be now? (First draw a timeline. Assume all cash flows are at year-end.)