Stephen and Chris are also looking at issuing preferred and common stock to further expand TechU's businesses. They also want to examine their existing stock value to get a picture of how much they can sell additional stock for. Help Stephen and Chris by answering the following questions.
1) TeleU, the company TechU is looking at purchasing, expected their dividend to grow at a rate of 35 percent for the next four years, then to drop to a growth rate of 15 percent for 2 more years, and then settle down to a 10 percent growth rate thereafter. TeleU just paid a dividend of $2.50. Investors’ required rate of return is 12 percent. What would TechU be willing to pay for TeleU's stock?
2) Instead of common stock, TechU is also looking at issuing preferred stock so Stephen Jobs can retain close ownership in the company. The preferred stock has a par value of $50 and will pay a 5% dividend per year. If the required return for investors is 8%, what is the value of the preferred stock?