Reference no: EM132485382

Point 1: Rogers Robotics currently (Year 0 = 2004) does not pay a dividend. However, the company Is expected to pay a $1.00 dividend two years from today (2006). The dividend is then expected to grow at a rate of 20 percent a year for the following three years. After the dividend is paid in 2009, it is expected to grow forever at a constant rate of 7 percent. Currently, the expected return on the stock is 13 percent.

Requirement:

Question 1: What should be the price of the stock today? (show your workings)

Point 2: It is now January 1, 1999; Great Wall 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, Great Wall is expected to experience a 15% annual growth rate for the next 5 years. By the end of the 5 years, other firms will have developed comparable technology, and Great Wall's growth rate will slow to 7% per year indefinitely. Shareholders require a return of 12% on Great Wall's share. The most recent annual dividend (D0), which was paid yesterday, was $1.75 per share.

Requirement:(show your workings)

Question 2: Calculate the expected dividends for years 1999 to 2004 (to the nearest cents).

Question 3: What is the share price now (to the nearest cents)?

Question 4: If you bought this share, what are the expected dividend yield, the capital gains yield and the expected total return for 1999?