Google has just declared a dividend of 2.12 on its common stock. Dividends are paid annually. Dividends are expected to grow at the rapid pace of 10 for the next 4 years, after which growth is expected to slow to 3 per annum forever.
During the rapid growth phase, the required return on this investment will be 20, and it is expected to drop to 12 when growth slows. What is the current market value of this stock?
A) 19.73
B) 23.98
C) 25.33
D) 29.43
E) 74.70
Question 2
Premium Seed Sales, Inc expects to generate sales of 22,000,000 in the coming year. All sales are done on a
credit basis, net 45 days.
Premium Seed has estimated that it takes an average of three days for payments to
reach their central office and an additional two days to process the payments. What is the opportunity cost of
the funds tied up in the mail and processing? Premium Seed uses a 360-day year in all calculations and can
invest free funds at 6.5.
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