This chapter involves Stock Valuation, please show your work so that I can learn from the problems below. Thank you. CAN YOU PLEASE SHOW YOUR ANSWERS IN EXCEL FOR SO I CAN SHOW MY WORK

Stock Valuation Problems

1. What is the value of a stock that is expected to pay a constant dividend of $2 per year if the required return is 15%? What if the company starts increasing dividends by 3% per year, beginning with the next dividend? The required return stays at 15%.

2. You observe a stock price of $18.75. You expect a dividend growth rate of 5%, and the most recent dividend was $1.50. What is the required return?

3. You want to value Maxima Machinery stock. You expect the firm to have a growth rate of 12% for the next two years, 9% for the succeeding two years, after which the firms growth will be a constant 4.5% a year. Maxima has just paid a dividend of $2.00. If the discount rate is 10%, what is the price of the stock?

4. Pittsburgh & West Virginia Railroad (PW) expects to have earnings per share of $0.48 in the coming year. Rather than reinvest these earnings and grow, the firm plans to pay out all of its earnings as a dividend. With these expectations of no growth, PWs current share price is $10. Suppose PW could cut its dividend payout rate to 67% for the foreseeable future and use the retained earnings to expand. The return on investment in the expansion is expected to be 11%. If we assume that the risk of these new investments is the same as the risk of its existing investments, then the firms equity cost of capital is unchanged. What effect would this new policy have on PWs stock price?