In this problem, you are using the dividend discount model to value shares. Unlike in the real-world where dividends get paid quarterly, we are assuming here that dividends get paid annually and that the next dividend is being paid in one year from today.

In the first example, we are looking at Apple, a company that has started paying dividends in 2012. The last dividend that Apple paid was $3.20. Given its current share price of $124, and assuming a required rate of return of 6.5%, what is the expected growth rate of Apples dividend that is implied in its current share price?

3.92%

3.82%

0%

Tesla is not paying any dividends and will unlikely do so in the near future. But once the world is covered by electric cars and the company has saturated the markets, its growth will slow down, and the company will then start returning money to its shareholders. Assume that Tesla will pay a one-time special dividend of $1,000 per share in 20 years from now and follow that with a regular annual $50 per share dividend that is growing 4% per year (first payment in 21 years). What should the share price of Tesla be today, assuming a required rate of return of 8%?

Approximately $483

Approximately $521

Approximately $2,250