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The last dividend just paid by Quantum Inc. was $2.

 The last dividend just paid by Quantum Inc. was $2.00. Quantum's growth rate is

expected to be a constant 15 percent for 3 years, after which dividends are expected to

grow at a rate of 10 percent forever. Quantum's required rate of return on equity (ks) is

14 percent. What is the current price of Quantum's common stock?


a) $62.57

b) $57.13

c) $54.88

d) $53.04

e) $48.14


7) Analysts expect Marble Comics to pay shareholders $1.00 per share annually over the

next five years. After that, the dividend will be $1.50 annually forever. Given a

discount rate of 10%, what is the value of the stock today?


a) $13.10

b) $14.30

c) $15.20

d) $16.10

e) $17.30


8) ABC company is expected to experience a 40% annual growth rate for the next 3 years

(years 1-3) and a 25% annual growth rate for the two following years (years 4 and 5). By

the end of 5 years, ABC's growth rate will slow to 10% percent per year indefinitely.

Stockholder require a return of 12% on ABC's stock. The most recent annual dividend

(D0 ), which was just paid yesterday, was $5.00 per share. Calculate the value of the

stock today, based on the assumptions above.

Top Answer

6) Current price of Quantum's common stock = D1/(1+r) + D2/(1+r)^2 + D3/(1+r)^3 + D4/(r-g)*1/(1+r)^3 Current price of... View the full answer

4 comments
  • Hi, Thank you again for providing the solutions. Is their a way to solve these problems with the financial calculator using NPV?
    • cxk384
    • Apr 05, 2018 at 10:39am
  • This type of problem is a multi stage growth it needs to be solved using equation method.
    • rocky4ever
    • Apr 05, 2018 at 10:52am
  • Each question has different instruction so its needs to be used equation method
    • rocky4ever
    • Apr 05, 2018 at 10:53am
  • my professor taught us these problems using cash flows and calculating NPV. for example number 7 CF0=0 CF1=1 CF2=1 CF3=1 CF4=1 CF5=16 I=10 then if you calculate NPV the answer is 13.1
    • cxk384
    • Apr 05, 2018 at 11:26am

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