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Declining growth stock The Textbook Product ion co, has been hit hard by increases comperition Ansver: d company' s analysts predict that earnings (and di vidends) wis deciine The rate of 5% annually forever. Assume that r,-11, and . will be the price of the company's stock three years from now , $27,17 b. $ 6.23 .$28.50 d. $10.18 e. $20.63 what 00. Nonconstant growth stock Answer: b 27. Club Auto Parts' last dividend, Do, was s0.50, and the company expects to experience no growth for the next 2 years. However, Club wiil grow at ar annual rate of 5% in the third and fourth years, and, beginning with the fifth year, it should attain a 10s growth rate that it will sustaln thereatter. Club has a required rate of return of 12 What should be the price per share of Club stock at the end of the second year, E, a. $19.98 b. $25.08 c. $31 21 d. $19.48 e. $27.55 (The following information applies to the next two problems.) Bridges & Associates' stock is expected to pay a $0.75 per-share dividend at the end of the year. The dividend is expected to grow 25% the next year and 35, the following year. After t # 3, the dividend is expected to grow at a constant rate of 65 a year. The company's cost of equity is 10%. Answer: b Stock price--nonconstant growth 28. What is the expected price of the stock today? $18.75 b. $27.61 . $30.77 Page 495 Chapter 9: Stocks and Their Valuation