Reference no: EM132968886

a. Suppose you are thinking of purchasing the stock of Moore Oil, Inc. and you expect it to pay a $4 dividend in one year and you believe that you can sell the stock for $28 at that time. If you require a return of 20% on investments of this risk, what is the maximum you would be willing to pay?

b. Suppose stock is expected to pay a $1.50 dividend every quarter and the required return is 10% with quarterly compounding. What is the price?

c. Suppose Big D, Inc. just paid a dividend of $2.50. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling for?

d. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. If the last dividend was $1.50 and the required return is 20%, what is the price of the stock?

e. Suppose a firm's stock is selling for $10.50. They just paid a $1 dividend and dividends are expected to grow at 5% per year. What is the required return?

f. Discuss the differences between debt and equity financing.