Problem 1: Feinstein's Breweries currently (d0) pays a $1.00 common stock dividend. Dividends have been recently growing at a 10 percent annual rate and are expected to continue growing at this rate for the next three years. Thereafter the growth rate is expected to be 5 percent for the foreseeable future.
Current Dividend
|
$1.00
|
1st Growth Rate
|
10%
|
2nd Growth Rate
|
5%
|
Required Rate of Return
|
13%
|
What is the current value of Feinstein's Breweries' common stock to an investor requiring a 13% rate of return?
Problem 2: Brooksman's High Roller Casinos currently (d0) pays $5.00 common stock dividend. Dividends have been recently growing at a 12 percent annual rate and are expected to continue growing at this rate for the next four years. Thereafter the growth rate is expected to be 6 percent for the foreseeable future.
Current Dividend
|
$5.00
|
1st Growth Rate
|
12%
|
2nd Growth Rate
|
6%
|
Required Rate of Return
|
15%
|
What is the current value of Brooksman's High Roller Casinos common stock to an investor requiring a 15% rate of return?