Question Thirteen a) Trinid Co. pulled off a miraculous recovery. Four years ago, it was near bankruptcy. Today, it announced a GHC1 per share dividend to be paid a year from now, the first dividend since the crisis. Analysts expect dividends to increase by GHC1 a year for another 2 years. After the third year, dividend growth is expected to settle down to a more moderate long-term growth rate of 6%. If the firm's investors expect to earn a return of 14% on this stock, what must be its price? b) A stock sells for GHC 40 . The next dividend will be GHC 4 per share. If the rate of return on reinvested funds is 15% and the company reinvests 40% of earnings in the firm, what must the discount rate be? c) Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the last dividend was GHC1 and the required return is 20%, what is the price of the stock? d) Nanannette Co. Ltd.'s stock price is faring quite well on the market and especially given its most recent dividend of GHC 2.40. In the view of Nananntte's strong financial position and its consequent low risk, its required rate of return is only 12%. If dividends are expected to grow at 5% into the indefinite future, what price would you offer to purchase Nanannette's stock (i) today? (ii) 4 years from now? e) What is the rate of return on a stock that currently sells for GHC 36 and is expected to sell for GHC40 a year from now? Dividends in the coming year are pegged at GHC 4 per share. What are the dividend yield and capital gain component of the return? f) R2Co. Ltd is currently listed on the Ghana Stock Exchange. After years of supernormal growth, the firm has finally settled into a constant growth mode. Based on a 15% required rate of return, dividend of GHC12 expected at the end of the year, and a current price of GHC 150 , compute the sustainable growth rate of the firm. Given that ROE was 18%, how much was the EPS