1. Company Z’s dividends per share are expected to grow indefinitely by 5 percent a year. If next year’s dividend is $10 and the market capitalization rate is 8 percent, what is the current stock price?
2. Company X is expected to pay an end-of-year dividend of $10 a share. After the dividend its stock is expected to sell at $110. If the market capitalization rate is 10 percent, what is the current stock price?
3. State one advantage and one disadvantage of both the dividend valuation and the price-earnings valuation methods used to value shares.