Solve the following:
Question 1: Thomas Brothers is expected to pay a $.50 per share dividend at the end of the year (i.e., D1= $0.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, Rs, is 15%. What is the value per share of the company’s stock?
Question 2: Fee Founders has preferred stock outstanding which pays a dividend of $5 at the end of each year. The preferred stock sells for $60 a share. What is the preferred stock’s required rate of return?
Question 3: A company currently pays a dividend of $2 per share, Do = 2. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, the n the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What would you estimate is the stock’s current price?