Reference no: EM133058516

a) X-Tech Limited invented a new device which reduced its production costs and the monthly costs of the internet service to its customers. The advantage the company anticipates from the new device is expected to last for the next four years. The company projects it will enjoy growth of 16% in the first year, 14% in the second year, with 10% and 8% in the next two years, after which it will have constant growth of 5%. The company last paid a dividend of $2.60 per share and expects that the dividends will grow at the same rate as its profits. The cost of capital is 10%.

i) Calculate X-Tech's share price today (P0).

ii) Calculate the expected share price two years from today (P2).

iii) Calculate the dividend yield for year 3.

b) Sanny's Limited stock has a beta of 0.9. The company last paid a dividends of $2.40 and it expects a constant growth rate of 6% in dividends per share, earnings and stock price.The current risk-free rate is 5% and the market risk premium is 8%. What is the company's equilibrium stock price?