Question: 1. The common stock of Eddie's Engines, Inc. sells for $28.71 a share. The stock is expected to pay $3.60 per share next year. Eddie's has established a pattern of increasing their dividends by 5.7 percent annually and expects to continue doing so. What is the market rate of return on this stock?
2. Railway Cabooses just paid its annual dividend of $3.50 per share. The company has been reducing the dividends by 12.2 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 14 percent?
3. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 6 percent per year. The company just paid its annual dividend in the amount of $2.90 per share. What is the current value of one share of this stock if the required rate of return is 8.40 percent?