homework5_fall2008 - Fall 2008 Engineering 120 Industrial...

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Unformatted text preview: Fall 2008 Engineering 120 Industrial Engineering & Operations Research September 28, 2008, 2008 Page 1 of 2 Homework #5 Due: October 6 Monday, at the beginning of the lecture 1. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend in 10 years and will increase the dividend by 6 percent per year thereafter. If the required return on this stock is 13 percent, what is the current share price? 2. North Side Corporation is expected to pay the following dividends over the next four years: $8, $7, $5 and $2. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 11 percent, what is the current share price? 3. Rizzi Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next three years, with the growth rate falling off to a constant 7 percent thereafter. If the required returnthree years, with the growth rate falling off to a constant 7 percent thereafter....
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This note was uploaded on 10/01/2008 for the course E 120 taught by Professor Alder during the Spring '08 term at University of California, Berkeley.

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homework5_fall2008 - Fall 2008 Engineering 120 Industrial...

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