1. What would happen to the weight of debt, weight of common stock, and WACC, if the interest rates are lower now than when the bonds were issued?
2. A Company is expected to pay a dividend of $2 in year 1, a dividend of $3 in year 2, and a dividend of $4 in year 3. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.
$85.60
$65.13
$67.95
$63.80
3. Citi Group (C)’s current annual dividend is $4.80 per share, which has been growing at 10 percent each year for the past 3 years. If starting from this year, the dividend growth rate declines linearly to 4% over a 8-year period, and it stays at 4 percent into perpetuity thereafter. Assuming Citi's estimated cost of equity is 12%, please compute the fair price of Citi Group today.
62.4
14.4
$76.8
48.0