Question 1

A local wine equipment manufacturer is planning to issue stocks. The company just paid a dividend of $3.60. Analysts expect the dividends to grow at an annual rate of 6% for the foreseeable future.

a.) If investors are expected to demand a rate of return of 16%, what should be the price of the share if a Gordon-Growth model is used

b.) After examining company statements, the analysts have revised their forecasts. They now expect to pay dividends to grow at 15% for the next 3 years and thereafter grow at an annual rate of 8%. What is the new price of the shares given these revised forecasts? Assume a rate of return of 16%

c.) How does a cumulative voting system allow minority representation in corporations?