1. The Clipper Sailboat Company is expected to earn $3 per share next year. The company will have a return on equity of 15 percent and the company will grow 5 percent in the future. The company has a cost of equity of 12 percent. Given that information, answer the following questions. a. What is the value of the companys stock? b. What is the present value of the growth opportunity? c. Assume that the growth rate is only 3 percent. What would the appropriate P/E mul-tiple be for this stock

2. Gentry Can Companys (GCCs) latest annual dividend of $1.25 a share was paid yester-day and maintained its historic 7 percent annual rate of growth. You plan to purchase the stock today because you believe that the dividend growth rate will increase to 8 percent for the next three years and the selling price of the stock will be $40 per share at the end of that time. a. How much should you be willing to pay for the GCC stock if you require a 12 percent return? b. What is the maximum price you should be willing to pay for the GCC stock if you believe that the 8 percent growth rate can be maintained indefinitely and you require a 12 percent return? c. If the 8 percent rate of growth is achieved, what will the price be at the end of Year 3, assuming the conditions in part (b)?

3. A company earned $5 per share in the year that just ended. The company has no more growth opportunities. The company has a 12 percent return on equity and a 12 percent cost of equity. What is the stock worth today? a. What if the company was expected to earn $5.50 next year and then never grow again? Assuming that their return on equity and cost of equity didnt change, what would the stock be worth today?