Iron Manufacturers made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $2.10 a share. Secondly, all dividends after that will increase by 2.5 percent annually. What is the maximum amount you should pay to purchase a share of this stock today if you require a 10 percent rate of return? Solve using Excel

CEPS Group announced today that it will begin paying annual dividends next year. The first dividend will be OMR 0.65 a share. The following dividends will be OMR 0.72, OMR 0.85, OMR 0.89, and OMR 0.95 a share annually for the following 4 years, respectively. After that, dividends are projected to increase by 4 percent per year. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 11.5 percent?

Vijay

You are trying to decide whether to invest in a "value" stock (Hawaii Utility Co.) or a "growth" stock (HI Tech Co.). Hawaii Utility Co. currently pays a dividend of $5 per share per year, and you expect that dividend to grow by 1% per year forever (e.g., $5.05 next year). Its price is $125. HI Tech Co. currently pays a dividend of just $1 per share per year, but you expect its dividend to grow 4%6 per year forever. The price of HI Tech Co is also $125. Given your expectations, is one company a better deal than the other? Explain why or why not? (Hint; figure out the discount rate you would need to rationalize each price using the present value rules that we went over in class).