Question 1: Chill Out Corporation's next annual dividend is expected to be $1.06 per share. Dividends and earnings have been growing at 6% a year and you expect this growth rate to continue indefinitely. If your required rate of return for this stock is 14%, what is the maximum price you should be willing to pay for it?
a. $7.57
b. $1.24
c. $13.25
d. $17.66
Question 2. If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price.
a. True
b. False
Question 3: The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20 percent, what should be the stock's market value?
a. $150
b. $100
c. $ 50
d. $ 25
e. $ 10