Question
a) T&T Inc. does not expect to initiate dividends for 15 years. At the end of Year 15, the company will start to pay dividends
a) T&T Inc. does not expect to initiate dividends for 15 years. At the end of Year 15, the company will start to pay dividends and expects its dividends to grow at 5% forever. The company has a 12% required rate of return on equity. i. What is an estimate of the companys stock price at the beginning of the 15th year if its dividend at the end of year 15 is $2.75? Show all work and formula(s) clearly. (2.5 marks) Click here to enter text. ii. What is the companys stock price in today's dollars if you (as an investor) desire a rate of return of 10%? Show all work and formula(s) clearly. [Hint: Use 14 years for the number of periods.] (2.5 marks) Click here to enter text. b) Excellent Services has preferred stock with a par value of $30 and an annual 2.75% cumulative dividend. An investor is willing to pay $8 for this preferred stock. What yield or rate of return is this investor seeking for the investment? Show all work and formula(s) clearly. (5 marks) Click here to enter text.
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