University of Northern lowa FIN 3130: Corporate Finance Sample Problems 1 a. It is now January 1, 1988. Prosun Engineering has just developed generating 200 percent more electricity than any solar panel currently in the market. Prosun is expected to experience a 30 per end of the two years other firms will have developed comparable technology and Prosun's growth rate will decline to 8 percent per year in the third year and stay there indefinitely. The required rate of return on Prosun's stock is 12% and the most recent annual dividend which was paid yesterday was $1.50 per share. a solar panel capable of As a result cent annual growth rate for the next two years. By the i. Calculate the expected dividends for 1989 and 1990. ii.Calculate the current market price of Prosun's common stock In evaluating the company, you believe earnings and dividends wil grow at arate of20% for the next three years, after which the growth rate will fall to-5%. If the beta of HH free rate is 6% and the market return is 12%; b. Hulu Huup, has introduced a new line of huups to be used only by consenting adults. is 2.0, the risk- i. Calculate the current market price if the last dividend (Do)was $3.00. ii. Calculate the value of the stock at the end of year 3 and the end of year 4. ii.If your projections hold true, what will the dividend yield be at the end of yr 3? Why is it so large compared to the required return