HW5 - P5-14.Gail Dribble is analyzing the shares of Petscan...

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Unformatted text preview: P5-14.Gail Dribble is analyzing the shares of Petscan Radiology. Petscans stock pays a dividend once each year, and it just distributed this years $0.85 dividend. The market price of the stock is $12.14. Gail estimates that Petscan will increase it dividends by 7 percent per year forever. After contemplating the risk of Petscan stock, Gail believes that she would be willing to hold the stock only if it provided an annual expected return of at least 13 percent. Should she buy Petscan shares or not?$12.14= (0.85*1.07)/(r 0.07)r = 0.145 or 14.5%The stock is priced at a level that provides a 14.5% return to investors, so it should be attractive to Gail.P5-17.Yesterday, September 22, 2006, Wireless Logic Corp. (WLC) paid its annual dividend of $1.25 per share. Because WLCs financial prospects are particularly bright, investors believe that the company will increase its dividend by 20 percent per year for the next four years. After that, WLC will increase the dividend at a modest annual rate of 4 percent. Investors require a 16 WLC will increase the dividend at a modest annual rate of 4 percent....
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This note was uploaded on 10/12/2010 for the course FINA 3383 taught by Professor Lovell during the Fall '10 term at Texas Pan American.

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HW5 - P5-14.Gail Dribble is analyzing the shares of Petscan...

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