1. You are considering buying shares of stock in the Steel Mill. The forecast for the firm is steady growth over the next decade. The firm just paid its annual dividend of $1.42 per share and has plans to increase that amount by 4 percent annually indefinitely. You require a 12.5 percent return on this type of security. What is your estimate of the value of this stock ten years from now?
A. $24.13
B. $24.38
C. $24.73
D. $25.06
E. $25.72
2. An increase in the retention ratio will:
A. increase the dividends per share.
B. decrease a firm's sustainable rate of growth.
C. decrease the equity of a firm.
D. increase the dividend growth rate.
E. increase the value of a firm's stock.