1. Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $3.10 coming 3 years from today. The dividend should grow rapidly—at a rate of 31% per year—during Years 4 and 5. After Year 5, the company should grow at a constant rate of 7.0% per year. If the required return on the stock is 11.1%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)?
$90.09
$138.84
$144.16
$111.20
2. Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs and machine lives, and will be replaced when worn out. Which one of the following computational methods should Dan use as the basis for his decision?
A- Bottom-up operating cash flow.
B- Internal rate of return.
C- Depreciation tax shield.
D- Equivalent annual cost.
E-Net present value.