Eastern Electric currently pays a dividend of $1.69 per share and sells for $24 a share.

a. If investors believe the growth rate of dividends is 2% per year, what rate of return do they expect to earn on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If investors' required rate of return is 12%, what must be the growth rate they expect of the firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If the sustainable growth rate is 3% and the plowback ratio is 0.3, what must be the rate of return earned by the firm on its new investments? (Enter your answer as a percent rounded to 2 decimal places.)

2.

Integrated Potato Chips paid a $3.40 per share dividend yesterday. You expect the dividend to grow steadily at a rate of 4.50% per year forever.

a.	What is the expected dividend in each of the next 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Expected Dividend
Year 1	$
Year 2
Year 3

b.	If the discount rate for the stock is 12.00%, at what price will the stock sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Current price

$

c.	What is the expected stock price 3 years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Future price

$

d.	If you buy the stock and plan to hold it for 3 years, what payments will you receive? What is the present value of those payments? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Year 1	Year 2	Year 3
DIV	$	$	$
Selling price
Total cash flow
PV of cash flow
sum of the PV's $