Answer to B

Use the model in Case Study. 4 - Excel File.xIsx to solve this problem. 1. Microweb Company has never paid a dividend. But, this year the company expects to pay a dividend equal to $2.50 per share, and it plans to continue paying this same dividend for the following two years (a total of three years). After the $2.50 dividend is paid at the end of Year (i.e., beginning in Year 4), the company expects the dividend to grow at a 3 percent rate, and th growth rate will continue indefinitely. If investors require a 14 percent rate of return to purchas the company's common stock, what should be the market value of Microweb's stock today? 2. Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15 percent annual growth rate for the next five years. When the five-year period e other firms will have developed comparable technology, and Ultimate's growth rate will slow t percent per year indefinitely. Stockholders require a return of 12 percent on Ultimate's stock. T firm's most recent annual dividend (Do), which was paid yesterday, was $1.75 per share. a. Calculate the value of the stock today. b. Calculate the dividend yield, D, /Po, the expected capital gains yield, and the expected total return (dividend yield plus capital gains yield) for this year. Calculate these same three yield for Year 5