Q5 (This question is not cumulative)

a) Ayden Inc.s common stock has paid a dividend of $3.5 per share per year for the last 12 years. Stock analysts expect it to continue to pay at that amount for the foreseeable future. The current required rate of return for the stock is 11%. What is the current price of the stock?

b) Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5 percent per year indefinitely. i) What price should the stock sell at? The discount rate is 15 percent. ii) How would your answer change if the discount rate were only 12 percent? Why does the answer change?

c) (Textbook Question 6.28) Metallica Bearings Inc. is a young start-up company. No dividends will be paid on the stock over the next nine years, because the firm needs to plow back its earnings to fuel growth. The company will pay a $9 per share dividend in 10 years and will increase the dividend by 5.5 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price?