Question 1

a. Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 70% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 4% per year. If the required return on the stock is 12%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to the nearest cent. Do not round your intermediate computations.

b. A company currently pays a dividend of $1.75 per share (D₀ = $1.75). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.95, the risk-free rate is 6.5%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

c. Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year (D₁ = $1.50); its beta is 1.05. The risk-free rate is 4.9% and the market risk premium is 6%. The dividend is expected to grow at some constant rate g_L, and the stock currently sells for $47 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is P3 )? Do not round intermediate steps. Round your answer to the nearest cent.