Austins is a constant growth company which paid a dividend last year of $0.95 per share and whose dividend is expected to continue to grow indefinitely at 6%.

What is the value of a share of stock in this firm today if you require an 8% rate of return?

Would you purchase Austins if it were selling at $50 per share?

Honeybees is currently selling for $50 per share and paid a dividend last year of $1.00 per share. Honeybees is growing at a constant rate of 5% per year.

What is the capital gains yield for Honeybees?

What is the expected dividend yield for Honeybees this coming year?

What is the expected total return (yield) for Honeybees?

If you require a 10% rate of return on stock, would you purchase Honeybees?

You are analyzing the stock of Cumberland Mining. The firm is expected to grow at a rate of 20% per year for two years and then resume its normal growth rate of 5% indefinitely. The firm paid a dividend last year of $1.25 per share. If you require an 8% rate of return on stock, what is the value of Cumberland Mining today?

Ashland Oil is not expected to pay a dividend until the end of the third year. At the end of year three, the dividend expected is $0.60. At the end of year four, the expected dividend is $0.65. After that, it is anticipated the firm will follow a normal growth pattern at 3% per year indefinitely. If you require a 6% rate of return, would you be willing to pay $20 for a share of this stock?