1. An oil produces 20,000 barrels of oil per year. Suppose the price of oil is $50 per barrel. You want to purchase the right to the oil produced by this well for the next five years. At a discount rate of 10%, what is the value of the oil rights? (You can assume that the cash flows from selling oil arrive at annual intervals.)
2. Hill Propane Distributers sells propane gas throughout the eastern half of Texas. Because of population growth and construction boom in recent years, the company has prospered and expects to continue to do well in the near term. The company will pay a $0.75 per-share dividend to investors one year from now. Investors believe that Hill Propane will increase that dividend at 15% per year for the subsequent five years, before settling down to a long-run dividend growth rate of 3%. Investors expect an 8% return on Hill Propane common shares. What is the current selling price of the stock?