Reference no: EM132493016

Nonconstant Dividend Growth Valuation

Question 1: A company currently pays a dividend of $1 per share (D0 = $1). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.2, the risk-free rate is 8.5%, and the market risk premium is 5.5%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Preferred Stock Rate of Return

Question 2: Nick's Enchiladas has preferred stock outstanding that pays a dividend of $4 at the end of each year. The preferred sells for $60 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.

Constant Dividend Growth Rate, gL

Question 3: Muller's Investigative Services has stock is trading at $70 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, gL, throughout time. The stock's required rate of return is 16% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL? Do not round intermediate calculations. Round the answer to two decimal places.