1. Van Buren, Inc., currently pays $2.38 per share in dividends on its common stock. Dividends are expected to grow at 7.00% per year forever. If you require a 15.00% rate of return (i.e., the discount rate) on this investment, what value would you place on a share of Van Buren common stock? Assume that the current dividend was just paid.
2. Bad Investment Incorporated has “promised” investors to pay a $4.00 per year dividend in perpetuity. If investors want a 16.00% return on this stock based on the risk, what intrinsic value of the stock today?