Problem+Set+6-1 - and its dividends are expected to grow at...

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E120 Principles of Engineering Economics Fall 2010 Problem Set #6 1. Krell Industries has a share price of $22.00 today. If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital? 2. NoGrowth Corporation currently pays a dividend of $0.50 per quarter, and it will continue to pay this dividend forever. What is the price per share if its equity cost of capital is 15% per year? 3. Dorpac Corporation has a dividend yield of 1.5%. Dorpac’s equity cost of capital is 8%,
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Unformatted text preview: and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpacs dividends? b. What is the expected growth rate of Dorpacs share price? 4. Gillette Corporation will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firms equity cost of capital is 8%?...
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This note was uploaded on 11/22/2010 for the course ENGIN 120 taught by Professor Ilan during the Fall '08 term at University of California, Berkeley.

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