Q1. Krell Industries has a share price of

$21.56

today. If Krell is expected to pay a dividend of

$0.81

this year and its stock price is expected to grow to

$23.61

at the end of the year, what is Krell's dividend yield and equity cost of capital?

Q2. Laurel Enterprises expects earnings next year of

$4.28

per share and has a

50%

retention rate, which it plans to keep constant. Its equity cost of capital is

9%,

which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of

4.5%

per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be?

Q3. Cooperton Mining just announced it will cut its dividend from

$3.89

to

$2.26

per share and use the extra funds to expand. Prior to the announcement, Cooperton's dividends were expected to grow at a

3.2%

rate, and its share price was

$48.17.

With the planned expansion, Cooperton's dividends are expected to grow at a

4.6%

rate. What share price would you expect after the announcement? (Assume that the new expansion does not change Cooperton's risk.) Is the expansion a good investment?