4. Stock Valuation (22 Points). XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also has total shares outstanding of 300 million. The corporation intends to distribute dividends to its shareholders according to the following schedule: Period 1: Give a dividend payout rate of 0% Period 2: Give a dividend payout rate of 100%. Period 3 until forever: Give a dividend payout rate of 70%. Dividends are also projected to grow at a rate of 4% every year forever. (a) 7 Points. Find the price of XYZ corporation's stock in period 2 (call it Py). Given P, write down the formula that would determine the (per share) price of XYZ's stock today (Po). Assume equity cost of capital is 8%. (NOTE: You have to plug in all relevant information into the formula for full credit, but you don't have to solve for the exact number using your calculator.). b) 5 Points. What is the expected total return from this stock? Assume, you will sell the stock at the end of period 2. (NOTE: To get full credit you need to write down the expression that would calculate the total return) (c) 5 Points. Suppose that in Period 3. XYZ also intends to start buying back some of its shares outstanding and it intends to spend 20% of its earnings to do so. According to the total payout model, what would be the stock price of XYZ Corporation in period 2? (d) 5 Points. As of November 16th, 2020 one share of Apple's stock traded at $120.30. On the other hand, one share of stock by Berkshire Hathaway traded at $349,540,000. Provide two reasons that might explain the large difference in the stock price between these corporations. 4. Stock Valuation (22 Points). XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also has total shares outstanding of 300 million. The corporation intends to distribute dividends to its shareholders according to the following schedule: Period 1: Give a dividend payout rate of 0% Period 2: Give a dividend payout rate of 100%. Period 3 until forever: Give a dividend payout rate of 70%. Dividends are also projected to grow at a rate of 4% every year forever. (a) 7 Points. Find the price of XYZ corporation's stock in period 2 (call it Py). Given P, write down the formula that would determine the (per share) price of XYZ's stock today (Po). Assume equity cost of capital is 8%. (NOTE: You have to plug in all relevant information into the formula for full credit, but you don't have to solve for the exact number using your calculator.). b) 5 Points. What is the expected total return from this stock? Assume, you will sell the stock at the end of period 2. (NOTE: To get full credit you need to write down the expression that would calculate the total return) (c) 5 Points. Suppose that in Period 3. XYZ also intends to start buying back some of its shares outstanding and it intends to spend 20% of its earnings to do so. According to the total payout model, what would be the stock price of XYZ Corporation in period 2? (d) 5 Points. As of November 16th, 2020 one share of Apple's stock traded at $120.30. On the other hand, one share of stock by Berkshire Hathaway traded at $349,540,000. Provide two reasons that might explain the large difference in the stock price between these corporations