Question 1:

(A) Kilbride Inc. is issuing some new preferred shares. The preferred stock will pay a perpetual

dividend of $12.00 per year starting 7 years from now. Torbay Corporation is issuing preferred

shares that pay a dividend of 10 percent, starting one year from now, on a $60 par value

preferred shares. Both preferred shares require a return of 8 percent. Which preferred share will

sell for a higher price in the market today? Show your work.

(B) Common shares of Big Pond Inc are currently selling for $46.90. The most recent dividend paid

was $2.21 per share and the mirket rate of return is 15.8 percent. At what constant rate is the

dividend growing?

(C) Horizon Inc. is a young virtual reality company. It is going through a period of high growth and has thus decided not to pay any dividends, until the end of year 6. At the end of year 6 it will pay a dividend of $2. This dividend will grow at a rate of 25% for the next 4 years. After that Horizon pledges to maintain a constant 5% growth rate in dividends, forever. How much will you pay for a share of Horizon Inc. today? Assume required return is 18% compounded annually. Show your work