1. Mally's Inc. expects to pay its first dividend of $1.25 one year from now....
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1. Mally's Inc. expects to pay its first dividend of $1.25 one year from now. It expects next years dividend to grow to $1.75. In year three it projects $2.10, and the following year $2.52. After that, the firm expects a constant-growth rate of 8%. If the required rate of return is 20%, what is the fair price of the stock?
a. $4.70
b. $30.30
c. $22.68
d. $15.63
2. Which of the following statements about preferred stock is FALSE?
a. Failure to pay dividends on preferred stocks will result in a default.
b. Preferred stock typically pays a fixed dividend.
c. Preferred stock has a lower-priority claim on the firms assets than the firms creditors in the event of default.
d. Preferred stock has a higher-priority claim on the firms assets than the common stock.
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