Question: 1) Wesen Corp. will pay a dividend of $3.50 next year. The company has stated that it will maintain a constant growth rate of 4.75 percent a year forever.
If you want a return of 16 percent, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current stock price ? If you want a return of 9 percent, how much will you pay for the stock?
2) Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next ten years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $16.00 per share 11 years from today and will increase the dividend by 5.25 percent per year thereafter. If the required return on this stock is 13.25 percent, what is the current share price?
3) Burton Corp. is growing quickly. Dividends are expected to grow at a rate of 28 percent for the next three years, with the growth rate falling off to a constant 7.4 percent thereafter. If the required return is 16 percent and the company just paid a dividend of $3.45, what is the current share price? (Hint: Calculate the first four dividends.)