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# Question 1 (One period stock pricing.) Qin's Marine Company (QMC) currently has a stock price per share of \$42. If QMC's cost of equity capital (the

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Question 1 (One period stock pricing.) Qin's Marine Company (QMC) currently has a stock price per share of \$42. If QMC's cost of equity capital (the discount rate for equity) is 16% and capital gains rate (gain/loss in prices relative to today's price) for the next year is expected to be 11%, the dividend in the upcoming year (t = 1) should be is closest to? 4 3 2 1 Question 2 Viento Windmills is a utility that charges customers for their wind generated electricity. With their current technology, they earn a total of \$50 million each year to pay out to their 2 million shareholders. While their geographic footprint is fixed and we can't expect the climate to get progressively windier over time, they do have an opportunity to invest in technology that will more efficiently extract the wind energy and thus produce more megawatts to sell to customers. A one- time investment at the end of this year (t = 1) of \$25 million for a state of the art lubricant system for the windmills will increase their cash flows by \$10 million per year starting the following year (t = 2) and in perpetuity. If Viento plans to make the investment and cost of equity capital (the discount rate for equity) is 9%, calculate the increase or decrease in the share price of Viento as a result of this decision. (Draw time line to understand what is going on.) (Enter just the number without the \$ sign or a comma; round off decimals.)

Solution
1) Dividend will be closest to 2
Stock price
Cost of equity
Capital Gain Tax rate(Growth rate) \$42.00
16%
11% Dividend = Price of stock*(Cost of Equity- Growth rate)
= 42*(16-11)
=2
2)...

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