eBook Problem Walk-Through You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50) and has a beta of 0.9. The risk-free rate is 4.5%, and the market risk premium is 4%. Justus currently sells for $39.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is Ps?) Do not round intermediate calculations. Round your answer to the nearest cent. $ eBook Problem Walk-Through Computech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Computech to begin paying dividends, beginning with a dividend of $1.25 coming 3 years from today. The dividend should grow rapidly - at a rate of 19% per year - during Years 4 and 5, but after Year 5, growth should be a constant 6% per year. If the required return on Computech is 15%, what is the value of the stock today? Do not round intermediate calculations. Round your answer to the nearest cent. eBook Carnes Cosmetics Co.'s stock price is $45, and it recently paid a $2.50 dividend. This dividend is expected to grow by 17% for the next 3 years, then grow forever at a constant rate, 9; and rs - 15%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places. Your broker offers to sell you some shares of Bahnsen & Co. common stock that paid a dividend of $2.00 yesterday. Bahnsen's dividend is expected to grow at 6% per year for the next 3 years. If you buy the stock, you plan to hold it for 3 years and then sell it. The appropriate discount rate is 9%. a. Find the expected dividend for each of the next 3 years; that is, calculate D1, D2, and D3. Note that Do - $2.00. Do not round intermediate calculations. Round your answers to the nearest cent. D - $ . D2 - $ D3 - $ b. Given that the first dividend payment will occur 1 year from now, find the present value of the dividend stream; that is, calculate the PVs of D1, D2, and Da, and then sum these PVs. Do not round intermediate calculations. Round your answer to the nearest cent. c. You expect the price of the stock 3 years from now to be $84.17; that is, you expect Ps to equal $84.17. Discounted at a 9% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $84.17. Do not round intermediate calculations. Round your answer to the nearest cent. d. If you plan to buy the stock, hold it for 3 years, and then sell it for $84.17, what is the most you should pay for it today? Do not round intermediate calculations. Round your answer to the nearest cent. e. Use equation below to calculate the present value of this stock. P D :(1+8) Di Assume that g- 6% and that it is constant. Do not round intermediate calculations. Round your answer to the nearest cent. 16 hold it? In other wordsIf your planned
