1. A firm does not pay a dividend. It is expected to pay its first dividend of $0.25 per share in 3 years (D3). This dividend will grow at 8 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.
a. $2.50 b. $10.33 c. $13.50 d. $13.75 e. $12.50
2. A share of perpetual preferred stock pays an annual dividend of $15 per share. The expected price of the stock is $125. What should be the investors’ require rate of return?
a. 13.5% b. 15.0% c. 13.39% d. 12.0% e. 8.33%