1. Deferred Dividends Downloads for Cheap, Inc. has a new business that allows customers to download music and movies directly onto their IPhones or MP3 players in grocery stores. The downloaded items can be played on their TVs or computers at home. The firm is in the high growth phase and does not currently pay dividends. Managers are estimating that the firm will begin paying an annual dividend per share of $1.00 in four years and that dividends will then grow at 6% per year thereafter. What is the most you should be willing to pay for the stock today if the required return on the stock is 11%?
$15.28
$13.76
$5.00
$14.62
2. P/E and Growth Daisy Pixie Stix pays out 60% of its earnings as dividends. The firm has been earnings $0.12 cents per dollar of equity invested in the firm and investors require a 10.25% return. The last annual earnings were $5.00 per share. What is the P/E ratio of the stock?
21.70
32.04
19.68
11.01