1) Joe Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?
2) Common stock value: Constant growth McCracken Roofing, Inc., common stock just paid a dividend of $1.20 per share last year. The company expects earnings and dividends to grow at a rate of 5% per year for the foreseeable future. What required rate of return for this stock would result in a price per share of $28? (Hint: Dividend Discount Stock Valuation Model).