Q.1 Nofal Corporation will pay a $4.00 per share dividend next year. The company pledges to increase its dividend by 5.5 percent per year, indefinitely. Required: If you require a return of 9 percent on your investment, how much will you pay for the company’s stock today? Q.2 Raffalovich, Inc., is expected to maintain a constant 5.45 percent growth rate in its dividends, indefinitely. Required: If the company has a dividend yield of 3.95 percent, what is the required return on the company’s stock? Q.3 You’ve collected the following information from your favorite financial website. 52-Week Price Stock (Div) Div Yld % PE Ratio Close Price Net Chg Hi Lo 79.3 10.62 Palm Coal 0.55 3.5 6 15.80 –0.24 55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 –0.01 130.93 69.50 SIR 2.00 2.2 10 88.97 3.07 50.24 13.95 DR Dime 0.80 5.2 6 15.43 –0.26 35.00 20.74 Candy Galore 0.32 1.5 28 ?? 0.18 According to your research, the growth rate in dividends for Palm Coal for the previous 10 years has been 4.25 percent. Required: If investors feel this growth rate will continue, what is the required return for Palm Coal stock? Q.4 Antiques ‘R’ Us is a mature manufacturing firm. The company just paid a dividend of $11.10, but management expects to reduce the payout by 5 percent per year, indefinitely. Required: If you require a return of 11 percent on this stock, what will you pay for a share today?

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