Dividend Yield =PriceDividend100, Intrinsic value =1+rDIV1+P1, Rate of return =P0P1+DIV1P0100 Capital Gain =P1P0, growth rate = plowback RoE, With dividend growth at a constant rate ' g ' P0=rgD1V1, Dividend payout =EarningsDividend 1. A stock sells off for $40(P0). The next dividend (DIV1) is $4 per share. If the rate of return earned on reinvested funds is a constant 15% and the company reinvests (plowback) 40% of earnings in the firm, what must be the discount rate? Ans. growth rate = plowback RoE= (P0)=rgD1orr=P0D1+g.Sor= 2. Horse and Buggy Inc. is in a declining industry. Sales, earnings, and dividends are shrinking at a rate of 10% per year. (a) If r=15% and DIV1=$3, what is the value of a share P0 ? (b) What is the forecasted price for the next year? Ans. P1=rgD2= (c) What is the expected rate of return on the stock? Ans. 3. Here are data on two stocks, both of which have discount rates of 15%