04 Equity Questions - Equity Questions Fin 301 1 Rearden Steel is expected to pay a $3.00 dividend next year Dividends are expected to grow at 10

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Equity Questions Fin 301 1. Rearden Steel is expected to pay a $3.00 dividend next year. Dividends are expected to grow at 10% for the foreseeable future. If the discount rate for Rearden stock is 15%, what is the price per share for Rearden stock? 2. Nielsen Motors is expected to pay a $5 dividend next year. This is expected to grow at 8% until year 8. After this growth is expected to slow to 3% per year for the foreseeable future. What is the price per share if the discount rate is 12%? 3. Taggart Transcontinental Railroad has 1 million shares outstanding and earnings of $10M. Assume that earnings are expected to remain constant and that Taggart pays out all earnings as dividends. If the discount rate for Taggart stock is 10%, what is the price per share? 4. Now suppose that Taggart has the opportunity to build a new engine. The project will need $10M so Taggart will not pay a dividend next year. The new engine will increase Taggart's earnings by $2m per year starting next year. What is ? 5.
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This note was uploaded on 11/01/2011 for the course BUSINESS FIN301 taught by Professor Andrew during the Fall '10 term at University of Alberta.

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04 Equity Questions - Equity Questions Fin 301 1 Rearden Steel is expected to pay a $3.00 dividend next year Dividends are expected to grow at 10

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