1. A company’s stock is worth $70 and has a dividend of $1.50. It is expected to grow at 2% for the forseeable future. The required rate of return is 17%. What can you say about the implied growth rate of dividends to justify the current market price.
2. Paychex Inc. (PAYX) recently paid an $0.88 dividend. The dividend is expected to grow at a 15 percent rate. The current stock price is $55.71. What is the return shareholders are expecting?
3. A firm does not pay a dividend. It is expected to pay its first dividend of $0.69 per share in two years. This dividend will grow at 12 percent indefinitely. Use a 13.5 percent discount rate. Compute the value of this stock.