1. A company’s stock is currently worth $50.00 per share based on a recent quarterly dividend of $0.99 per share, expected quarterly growth of 1%, and a required rate of return of 12% compounded quarterly. However, new information has cast serious doubts on the future growth of this company’s dividends. Dividends are now expected to decline 1% every quarter. What should the stock be trading for after this new information is revealed?
2. A company just paid an annual dividend of $1.10 per share. The dividend is expected to grow by 4.0%, 4.5%, and 12.5% over the next three years, respectively. After that, the dividend is expected to increase by 2.5% annually. What is one share worth today if other stocks with similar riskiness have expected returns of 9.5%?
3. A company just paid an annual dividend of $0.95 per share. The company also announced a target future dividend growth rate of 2.6% annually. If you require a 13% rate of return, how much are you willing to pay to purchase one share of this stock today?