Rollins Industries expects to pay a $3.00 per share dividend on its common stock at the end of the year. The dividend is expected to grow 25% a year until t=3 after which time the dividend is expected to grow at a constant rate of 5% a year. The stocks beta is 1.2, the risk free rate of interest (Rf) is 6% and the rate of return on the market (Rm) is 11%. Use the CAPM equation to find the equity cost of capital (i.e., required rate of return: Rs = Rf + (Rm-Rf)*beta). 13. What is the companys intrinsic current stock price, P0?

a. $60.00 b. $55.75 c. $59.05 d. $45.60 e. $70.00

14. The dividend yield and capital gains yield at the end of year 1 are? a. 5.08%; 6.92% b. 6.00%; 6.00% c. 6.12%; 5.88% d. 5.80%; 6.90% e. 12%; 10%