Reference no: EM133275316

Microweb Company has never paid a dividend. But, this year the company expects to pay a dividend equal to $2.50 per share, and it plans to continue paying this same dividend for the following two years (a total of three years). After the $2.50 dividend is paid at the end of Year 3 (i.e., beginning in Year 4), the company expects the dividend to grow at a 3 percent rate, and this growth rate will continue inde?nitely. If investors require a 14 percent rate of return to purchase the company's common stock, what should be the market value of Microweb's stock today? Ultimate Electric, Inc. has just developed a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, Ultimate is expected to experience a 15 percent annual growth rate for the next ?ve years. When the ?ve-year period ends, other ?rms will have developed comparable technology, and Ultimate's growth rate will slow to 5 percent per year inde?nitely. Stockholders require a return of 12 percent on Ultimate's stock. The ?rm's most recent annual dividend (D0), which was paid yesterday, was $1.75 per share.

a. Calculate the value of the stock today.

b. Calculate the dividend yield, I31 /Po, the expected capital gains yield, and the expected total return (dividend yield plus capital gains yield) for this year. Calculate these same three yields for Year 5.