Question 1
B.C. Inc. (BCI) pays an annual dividend of $3.10 per share. If BCI’s stock is currently trading at $58 per share, and BCI’s expected growth rate is 4.2%, what is BCI’s expected return?
◦
9.50%
◦
9.90%
◦
10.27%
◦
10.80%
Question 2
Beranek Technologies was founded 10 years ago. It has been profitable for the past 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.60 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 9% thereafter. The forecast of the future dividend stream, along with the forecasted growth rates, is shown below. With a required return of 12%, what is the current intrinsic value?
| | | | | | | | | |
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | |
| Growth rate | NA | NA | NA | NA | 60% | 30% | 9% | |
| Dividend | $0 | $0 | $0 | $0.60 | $0.96 | $1.25 | $1.36 | |
| | | | | | | | | |
◦
$26.50
◦
$26.83
◦
$27.12
◦
$27.48
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