• 1.Supposeyouknowacompany'sstockcurrentlysellsfor$50pershareandtherequiredreturnonthestockis16percent.Youalsoknowthatthetotalreturnonthestockisevenlydividedbetweenacapitalgainsyieldandadividendyield.
• Required:Ifit'sthecompany'spolicytoalwaysmaintainaconstantgrowthrateinitsdividends,whatisthecurrentdividendpershare?
• • 2.ApocalypticaCorp.paysaconstant$23dividendonitsstock.Thecompanywillmaintainthisdividendforthenext15yearsandwillthenceasepayingdividendsforever.Required:Iftherequiredreturnonthisstockis15percent,whatisthecurrentshareprice?
• 3. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on thestock over the next 11 years because the firm needs to plow back its earnings to fuel growth.The company will pay a $10 per share dividend in 12 years and will increase the dividend by 4
• percent per year thereafter.
• Required: If the required return on this stock is 9 percent, what is the current share price? (Do not round
• yourintermediatecalculations.)
• 4. Far Side Corporation is expected to pay the following dividends over the next four years: $12,$11, $7, and $3. Afterward, the company pledges to maintain a constant 7 percent growth rate individends forever.
• Required: If the required return on the stock is 16 percent, what is the current share price? (Do not round
• your intermediate calculations.)