Question Fifteen a) Common stock valuation: Scotto manufacturing is a mature firm in the machine tool component industry. The firm's most recent common stock dividend was $2.40 per share. Because of its maturity as well as its stable sales and earnings, the firm's management feels that dividends will remain at the current level for the foreseeable future. (i) If the required return is 12%, what will be the value of Scotto's common stock? (ii) If the firm's risk as perceived by market participants suddenly increases, causing the required return to rise to 20%, what will be the common stock value? (iii) Judging on the basis of your findings in parts a, and b, what impact does risk have on value? Explain. b) Common stock value-Constant growth: Elk County Telephone has paid the dividends shown in the following table over the past 6 years. The firm's dividend per share next year is expected to be $3.02. (i) If you can earn 13% on similar-risk investments, what is the most you would be willing to pay per share? (ii) If you can earn only 10% on similar-risk investments, what is the most you would be willing to pay per share? (iii) Compare and contrast your findings in parts a and b, and discuss the impact of changing risk on share value