1)

i. Why would the total payout model be needed?

a) Most firms compensate their top executives with stock.

b) Some firms have debt and therefore pays some of its operating earnings to bondholders.

c) Some companies choose to buy back shares instead of paying dividends.

d )Some companies do not have any earnings and therefore no cash to give to shareholders in the near-term.

ii. PDQ Corporation is forecast to have total earnings of $1 billion next year and to pay out a total of 22% of these earnings to shareholders in the form of share repurchases and dividends. PDQ Corporation has 100 million shares outstanding. Its earnings are forecast to grow at a rate of 2% constantly. The stock's required rate of return is 10%. What is the value of a share today? Answer in dollars and round to the nearest cent.

iii) What is another name for the cost of equity capital?

a )Capitalization Rate

b) Capital Return

c) Dividend Yield

d) Return on Equity