Question1: Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25 percent for the next four years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was 1.25 dollars, its beta is 1.20, the market risk premium is 5.50 percent, and the risk-free rate is 3.00 percent. Calculate the current price of the common stock?
[A] $26.77
[A] $30.21
[C] $31.42
[D] $27.89
[E] $29.05
Question2: Savickas Petroleum’s stock has a required return of 12 percent, and the stock sells for 40 dollar per share. The firm just paid a dividend of 1.00 dollar, and the dividend is expected to grow by 30% per year for the next 4 years, so D4 = $1.00(1.30)4 = $2.8561. After t = 4, the dividend is expected to grow at a constant rate of X percent per year forever. What is the stock’s expected constant growth rate after t = 4, i.e., what is X?
[A] 5.72%
[B] 6.02%
[C] 6.34%
[D] 5.17%
[E] 5.44%
Question3: The Ramirez Company's last dividend was 1.75 dollar. Its dividend growth rate is expected to be constant at 25% for two years, after which dividends are expected to grow at a rate of 6 percent forever. Its required return [rs] is 12 percent. Determine the current stock price?
[A] $43.71
[B] $44.80
[C] $45.92
[D] $41.58
[E] $42.64