Problem 19 You expect ABC Company to pay a dividend of $1.66 next year. After that, you think dividends will grow by 12% for 2 years, 8% the year after that, and then maintain constant growth of 4% per year forever. You require a 16% return to invest in ABC. (a) How much would you pay for a share of ABC stock today? (b) What is the expected price of the stock next year? Problem 20. You expect ABC Company to pay a dividend of $1.66 next year. After that, you think dividends will grow by 12% for 2 years, 8% the year after that, and Ans: $16.15 Ans: $17.08 then maintain constant growth of 4% per year forever. You require a 16% retum to invest in ABC (a) How much would you pay for a share of ABC stock today? (b) What is the expected price of the stock next year? Problem 21. Dividends at BPL are expected to shrink by 6% per year for the foreseeable future. Investors require a 12% return on the stock, and the next dividend is Ans: $16.15 Ans: $17.08 expected to be $1 .28 (a) How much would you pay for a share of the company today? (b) What is the expected price next year? (c) What is the one-year retum on the stock? Problem 22. A constant growth stock is currently selling for $45 per share, has a 13% expected return and 8% expected capital appreciation (a) What is the expected price of the stock next year? (b) What is the next expected dividend? Ans: $7.1 Ans: $6.68 Ans: 12% Ans: $48.60 Ans: $2.2.5