(a) ABC Company has just paid a dividend of $1.00 per share. Dividends are paid...
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(a) ABC Company has just paid a dividend of $1.00 per share. Dividends are paid annually. Analysts estimate that dividends per share will grow at a rate of 20% for the next 2 years, at 15% for the subsequent 3 years, and at 3% thereafter. If the shareholders required rate of return is 12% per year, then what is the price of the stock today? What will be the ex-dividend price at the end of the first year? What will be the capital gains yield in the first year? [10 points]
(b) Crazy Dividends Inc. has announced that it will pay dividends only in alternate years, starting 2 years from now. It has just paid a $1.00 dividend per share and the next dividend will be at the end of year 2, followed by dividends at the end of year 4, 6, etc. Each dividend amount is 10% higher than the last payment. So, the next dividend will be $1.10. The stock is selling for $22 right now. What is the shareholders required return per year? [5 points]
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