Homework 4

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1. The risk-free rate of return is 5%, the required rate of return on the market is 12%, and High-Flyer stock has a beta coefficient of 1.2. If the dividend per share expected during the coming year, D 1 , is $3.50 and g = 3 , at what price should a share sell? 2. Sisters Corp expects to earn $5 per share next year. The firm’s ROE is 12% and its plow-back ratio is 40%. If the firm’s required rate of return is 10%, what is the present value of its growth opportunities?
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