EMC Company is expected to pay a dividend in year 1 of $1.65, a dividend in year 2 of $1.97, and a dividend in year 3 of $2.54. After year 3, dividends are expected to grow at the rate of 8% per year. An appropriate required return for the stock is 11%. The stock should be worth _______ today.

EMC Company is expected to pay a dividend in year 1 of $1.65, a dividend in year 2 of $1.97, and a dividend in year 3 of $2.54. After year 3, dividends are expected to grow at the rate of 8% per year. An appropriate required return for the stock is 11%. The stock should be worth _______ today.

12. The growth in dividends of Calpine, Inc. is expected to be 8% per year for the next two years, followed by a growth rate of 4% per year for three years; after this five-­‐year period, the growth in dividends is expected to be 3% per year, indefinitely. The required rate of return on Calpine, Inc. is 11%. Last year’s dividends per share were $2.75. What should the stock sell for today?

13. Stingy Corporation is expected have EBIT of $1.2M this year. Stingy Corporation is in

the 30% tax bracket, will report $133,000 in depreciation, will make $76,000 in capital expenditures, and will have a $24,000 increase in net working capital this year. What is Stingy’s FCFF?

USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMS A large grocery chain is reevaluating its bonds since it is planning to issue a new bond in the current market. The firm’s outstanding bond issue has 6 years remaining until maturity. The bonds were issued with a 6 percent coupon rate (paid semiannually) and a par value of $1,000. Because of increased risk the required rate has risen to 10 percent. 14. What is the current value of these securities? 15. What will be the value of these securities in one year if the required return declines to 8 percent?

16. In 2008, Talbot Inc. issued a $110 par value preferred stock that pays a 9 percent annual dividend. Due to changes in the overall economy and in the company’s financial condition investors are now requiring a 16 percent return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now? USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMS Five years ago your firm issued $1,000 par, 20-­‐year bonds with a 6% coupon rate and an 8% call premium. The price of these bonds now is $1103.80. Assume annual compounding. 17. Calculate the yield to maturity of these bonds today. 18. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them? USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMS You purchase an 8% coupon, 25-­‐year, $1,000 par, semiannual payment bond priced at $980 when it has 15 years remaining until maturity. 19. What is its yield to maturity? 20. What is the yield to call if the bond is called 5 years from today with a 5% premium?