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(a) Suppose Tornado Inc. just paid a dividend of $.40. It is expected to increase its dividend by 3% per year. If the market requires
(a) Suppose Tornado Inc. just paid a dividend of $.40. It is expected to increase its dividend by 3% per year. If the market requires a return of 10% on assets of this risk, how much should the stock be selling for? (2 marks) (b) You observe a stock price of $18.75. You expect a dividend growth rate of 5% and the most recent dividend was $1.50. What is the required return? (3 marks) (c) Suppose that your company is expected to pay a dividend of $1.50 per share next year. There has been a steady growth in dividends of 5.7% per year and the market expects that to continue. The current price is $20. What is the cost of equity? (3 marks) (d) Yvette Company stock currently sells for $50 per share. The next expected annual dividend is $2, and the growth rate is 6%. What is the expected rate of return on this stock? ( 2 marks) TURN OVER
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