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Section A - Answer BOTH of the questions in this section. You must not copy...

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Finance

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Section A - Answer BOTH of the questions in this section. You must not copy and paste directly from an Excel spreadsheet as the answer. Required: Show ALL your workings and fully explain your answers where applicable. Q1. Consider the following three stocks: A. Stock A is expected to provide an annual dividend of 8 a share forever. B. Stock B is expected to pay a dividend of 5 next year. Thereafter, dividend growth is expected to be 4% a year forever. C. Stock C is expected to pay a dividend of 6 next year. Thereafter, dividend growth is expected to be 12% percent a year for 4 years and zero thereafter. a) If the cost of capital for all 3 companies is 10%, which stock is the most valuable? [12 marks]

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