Microtech corp. is expanding rapidly, and it currently needs to retain all its earnings, hence it doesn't pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.23 coming 5 years from today. The dividend should grow rapidly at a rate of 30% per year during year 6 and 25% per year during year 7. After year 7, the company should grow at a constant rate of 5.3% per year. Microtech corp is considered twice as risky as the market in which the risk free rate is 5.6% and the risk premium on the S&P500 is 10.6%. However, the stock of Microtech is currently priced to yield 13.8%.

11. How much should the stock sell at?

a.$9.40b.$14.06c.$20.13d.$27.38e.$35.90

12. What is the expected capital gains yield on the stock in year 1?

a.-0.40%b.5.3%c.10.10%d.15.60%e.25.00%

13.If also you believe the stock is valued according to the dividend growth model, which statement is most consistent with your beliefs?

a.The stock price is 6%overvalued relative to intrinsic value

b.The stock price is 6%undervalued relative to intrinsic value

c.The stock price is 4%overvalued relative to intrinsic value

d.The stock price is 5%undervalued relative to intrinsic value

e.The stock price is 4%undervalued relative to intrinsic value

14.

Suppose that you buy the stock today at its market price and hold it for 10 years when the stock converged to its intrinsic value, what would have been your annual rate of return from holding the stock?

a.-0.40%b.5.3%c.10.10%d.15.60%e.25.00%

15. The common stock of Jesup's returned a nifty 24.6 percent rate of return last year. The dividend amount was $0.40 a share which equated to a dividend yield of 0.6 percent. What was the rate of price appreciation for the year?

a.

14.25%

b.

10.41%

c.

24.00%

d.

9.06%

e.

15.54%