Reference no: EM132816358

1 The most recent dividend Blue Mountain Breweries Limited paid was $39% per share. The company expects to pay the same dividend each year. The required rate of return for this firm is . A variety of proposals are being considered by management to redirect the firm's activities. As a shareholder, which of the following proposal would you prefer?

Proposal #1: Do nothing, which will leave the key financial variables unchanged and there are no growth opportunities.

Proposal #2: Invest in a new machine that will increase the dividend growth rate to a constant rate of 6%. However, this will increase the required rate of return to 14%.

Proposal #3: Expand operations to a new area that would increase the growth rate for the next three years to 6% and then remain constant at 2% per year forever. However, in this case, the required rate of return is expected to decrease to 8%.

2 The Bluenose Chip Company is experiencing rapid growth. The company expects dividends to grow at 15% per year for the next 4 years before leveling off at 6% into perpetuity. The required return on the company's stock is 15%. The dividend per share just paid was $1.25.

Calculate the current market value of Bluenose Chip's stock.