Exercise 5 a. A stock is expected to pay a year-end dividend of $2.00, i.e., D = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, what is the price of stock? Show all calculations. b. Alcott's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return? Show all calculations. c. How common stocks differ from preferred stocks? In case of liquidation, which one has the preferential rights and why? Discuss. Exercise 6 Hutchinson Corporation has zero debt-it is financed only with common equity. Its total assets are $410,000. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? Show all calculations