JQT Corporation just paid a dividend of per share which represents 60% of its profit after $3.65 tax. Its return on shareholder's equity is expected to remain constant at 11% per annum for ever. JQT stock is listed on a stock exchange and is trading at $91.63 per share. 1. If the market believes the 60% payout ratio will continue for ever, and if everyone uses the constant growth dividend discount model to value JQT stock: (a) what is the earnings growth rate? (b) what rate of return are investors apparently requiring? Instead you think JQT will pay out 60% for the first two dividends, then increase the payout ratio to 80% from the third dividend onwards. (c) How much will be the dividend in year 3? (d) If your required rate of return is 14.5% per annum, how much would you be willing to pay for JQT? Two years ago you bought a mobile phone on a 3-year contract which cost you $0 up front and requires monthly payments of $54 at the end of each month. Today your friend Dan tells you he just bought a similar phone from another company for $132 up front and payments of only $40 at the end of each month. Furthermore, on the new plan, he can continue to pay the same $132 every 3 years to get a new handset. 2. (a) If your friend stays on the new plan for ever, and continues to buy a new handset every 3 years, what is the NPV of his decision to sign up? Both you and Dan have a discount rate of 1.08% per month