Wally Wilson is a commercial artist who makes a good living by doing freelance workmostly layouts and illustrationsfor local ad agencies and major institutional clients (such as large department stores). Wally has been investing in the stock market for some time, buying mostly high-quality growth stocks as a way to achieve long-term growth and capital appreciation. He feels that with the limited time he has to devote to his security holdings, high-quality issues are his best bet. He has become a bit perplexed lately with the market, disturbed that some of his growth stocks arent doing even as well as many good-grade income shares. He therefore decides to have a chat with his broker, Al Fried.During their conversation, it becomes clear that both Al and Wally are thinking along the same lines. Al points out that dividend yields on income shares are indeed way up and that, because of the state of the economy, the outlook for growth stocks is not particularly bright. He suggests that Wally seriously consider putting some of his money into income shares to capture the high dividend yields that are available. After all, as Al says, The bottom line is not so much where the payoff comes from as how much it amounts to! They then talk about a high-yield public utility stock, Hydro-Electric Light and Power. Al digs up some forecast information about Hydro-Electric and presents it to Wally for his consideration:

Year	Expected EPS ($)	Expected Dividend Payout Ratio (%)
2020	$3.25	40%
2021	$3.40	40%
2022	$3.90	45%
2023	$4.40	45%
2024	$5.00	45%

The stock currently trades at $60 per share. Al thinks that within five years it should be trading at $75 to $80 a share. Wally realizes that to buy the Hydro-Electric stock, he will have to sell his holdings of CapCo Industriesa highly regarded growth stock that Wally is disenchanted with because of recent substandard performance.

a. How would you describe Wallys present investment program? How do you think it fits him and his investment objectives? Explain

b. Consider the Hydro-Electric stock.Determine the amount of annual dividends per share Hydro-Electric can be expected to pay over the years 2020 to 2024. (Use Excel worksheet to calculate and show your work).

c. Compute the total gain/(loss) per year, split by dividends and capital gain/(loss). Assume Wally purchases 100 shares of Hydro-Electric stock on the first trading day of 2020 at $60.00 and the stock market price is $4.00 higher at each year end (i.e. $64 at 12/31/20, $68 at 12/31/21, etc.). Also assume Wally received each dividend and deposits that amount into his cash account and does not reinvest the dividends. (Use Excel worksheet to calculate and show your work).

d. If Wally did participate in the companys dividend reinvestment plan, would he own more shares of stock at each year end? Explain,

e. Would the dividends received be taxed differently if Wally reinvested the dividends into Hydro-Electric stock versus depositing the dividend amount into his cash account each year? Explain,