1. A company just paid $4.00 annual dividend. The firm has a stock price of $70, and a constant growth rate of 5 percent a year forever.Compute the annual required rate of return.
2. Suppose a firm is expected to pay an annual dividend next year of $5.00 per share. Both sales and profits for the company are expected to grow at a rate of 30 percent in year 2 and year 3, and then at 6 percent per year thereafter indefinitely.Dividend growth is expected to match sales growth.If the annual required return is 16%, what is the value of a share of firm's stock?