Phillips is growing and dividends are growing at a rate of 25% for the next three years, then falling off to a constant 5% thereafter. If the required return is 12% and the company just paid a dividend of $3.10, what is the current share price?

Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of 0.50 coming 3 years from today. The dividend should grow rapidlyat a rate of 80% per yearduring Years 4 and 5. After Year 5, the company should grow at a constant rate of 7% per year. If the required return on the stock is 16%, what is the value of the stock today? (Assume the market is in equilibrium with the required return equal to the expected return.)

If a firm’s earnings per share grew from $1 to $2 over a 10-year period, the total growth would be 100%, but the annual growth rate would be less than 10%. True or false? Explain.

The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 7% per year in the future. Shelby’s common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year. Using the discounted cash flow approach, what is its cost of equity? If the firm’s beta is 1.6, the risk-free rate is 9%, and the expected return on the market is 13%, then what would be the firm’s cost of equity based on the CAPM approach? If the firm’s bonds earn a return of 12%, then what would be your estimate of rs using the own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use a 4% risk premium.) On the basis of the results of parts a–c, what would be your estimate of Shelby’s cost of equity?