1-a. Roller Burger Drive-in is expected to pay a $1.20 dividend next year. The dividends are expected to grow at a rate of 5%. If the required return is 8%, what is the price of the stock?

Price of the stock = D1 / (r - g) = $1.20 / (8% - 5%) = $1.20 / 3% = $40

1-b. The PE ratios for the fast food industry are as follows:

McDonalds	26.4		Yum	23.88
Jack in the Box	18.41		Dominos Pizza	32.42

If Roller Burger Drive-in has an Earnings per Share of $2. What would be the highest, lowest and average price that you would expect for Roller Burger stock?

1-c. Given your answers in Questions 1-a and 1-b are different, what would you actually expect the price of Roller Burger stock to be? Why?

1-a is answer is $40