..ooo T-Mobile 12:25 You are considering investing in CSX Stock. Considering its risk, you think a required return of 13% is appropriate. Consider the following scenarios: Scenario 1 Bad news for rail! Companies have changed their distribution systems such that rail is too inflexible for most needs. Low fuel prices for trucks and ships drive rail shipping prices to all-time lows. CSX likely becomes a takeover target. Suppose CSX pays out S1 a year in dividends for the next 4 years. In year 5, the company gets bought by another rail company and investors receive a $5 cash buyout (like a liquidating dividend). Given a 13% required return, how much should the stock be worth today? Scenario 2-Status quo for rail! Fuel prices stabilize as more OPEC countries become democracies following the Arab spring. New EPA guidelines force truck companies to improve the fuel efficiency of the average diesel engine. Given this, the benefits of rail over road become less obviously distinct and CSX chugs along at near zero growth. CSX stays in operation but doesn't grow or shrink. If it pays a dividend of S0.90 a year forever, what would the price be today at a 13% required return? Scenario 3-Good news for rail! Better port access and switching yards pop up across the United States. Immediate benefits are realized as CSX opens new distribution points in the Gulf of Mexico and the Northwest. The long term outlook also improves following a huge upgrade of existing rail bridges with the Reinvest in America Act. CSX had an annual dividend yesterday of $0.77. You think dividends will grow at a rate of 9% a year forever. What would the price be today if this is the case and you expect a 13% return