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Unformatted text preview: Summer 2008 Ismail Ceylan UGBA 103 Discussion Section June 05, 2008 Page 1 of 2 Discussion Section #3 Problem 1: Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 9 years, because the firm needs to plow back its earnings to fuel growth. The company will pay an $8 per share dividend in 10 years and will increase the dividend by 6% per year, thereafter. If the required return on this stock is 13 percent, what should be the current share price? Problem 2: South Side Corporation is expected to pay the following dividends over the next four years: $8, $6, $3, and $2. Afterwards, the company pledges to maintain a constant 5 percent growth rate in dividends, forever. If the required return on the stock is 13 percent, what should be the current share price? Problem 3: Rizzi Co. is growing quickly. Dividends are expected to grow at a 25 percent rate for the next 3 years, with growth rate falling off to a constant 7 percent thereafter. If the requiredfor the next 3 years, with growth rate falling off to a constant 7 percent thereafter....
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- Spring '08