Reference no: EM132986424

Solarpower Systems earned ?$20 per share at the beginning of the year and paid out ?$9 in dividends to shareholders? (so, D0=$9?) and retained ?$11 to invest in new projects with an expected return on equity of 19 percent. In the? future, Solarpower expects to retain the same dividend payout? ratio, expects to earn a return of 19 percent on its equity invested in new? projects, and will not be changing the number of shares of common stock outstanding.

Problem 1: Calculate the future growth rate for? Solarpower's earnings.

Problem 2: If the? investor's required rate of return for? Solarpower's stock is 15 percent?, what would be the price of? Solarpower's common? stock?

Problem 3: What would happen to the price of? Solarpower's common stock if it raised its dividends to ?$13 and then continued with that same dividend payout ratio? permanently? Should Solarpower make this? change? ? (Assume that the? investor's required rate of return remains at 15 percent?.)

Problem 4: What would happened to the price of? Solarpower's common stock if it lowered its dividends to ?$4 and then continued with that same dividend payout ratio? permanently? Does the constant dividend growth rate model work in this? case? Why or why? not? ? (Assume that the? investor's required rate of return remains at 15 percent and that all future new projects will earn 19 ?percent.)