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    required rate of return

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    1) EMC has preferred stock outstanding which pays a dividend of $5.00 at the end of each year. This stock was issued in perpetuity and has no maturity date. EMC's preferred stock sells for $60 per share.

    Calculate this preferred stock's required rate of return

    SHOW ALL WORK.

    2) Flanigan Corporation has just paid an annual dividend of $1.50 per share (D0 = $1.50). The dividend is expected to grow 5% per year for the next 3 years, and then 10% a year thereafter.

    Calculate Flanigan Corporation's expected dividend per share for each of the next 5 years.

    SHOW ALL WORK.

    3) Pablo's Pizza International Inc.'s common stock currently sells for $20 per share. The stock has just paid an annual dividend of $1.00 (D0 = $1.00). The dividend is expected to grow at a constant rate of 10% per year.

    a. Calculate the stock price expected 1 year from now.
    b. Calculate the required rate of return on PPI's common stock.

    SHOW ALL WORK.

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    Solution Preview

    1) EMC has preferred stock outstanding which pays a dividend of $5.00 at the end of each year. This stock was issued in perpetuity and has no maturity date. EMC's preferred stock sells for $60 per share.

    Calculate this preferred stock's required rate of return

    =Dividend/Stock Price
    =5/60
    8.33% =Answer

    2) Flanigan Corporation has just paid an annual dividend of $1.50 per share (D0 = $1.50). The dividend is ...

    Solution Summary

    The required rate of return is presented.

    $2.19