Question: Question 2: 16 Marks (a) Glim's Inc. is expected to pay annual dividends of $2.50 a share for the next three years. After that, dividends

Question 2: 16 Marks (a) Glim's Inc. is expected to pay

Question 2: 16 Marks (a) Glim's Inc. is expected to pay annual dividends of $2.50 a share for the next three years. After that, dividends are expected to increase by 3% annually. What is the current value of this stock to you if you require a 9% rate of return on this investment? If the stock is selling in the market for $55 will you buy this stock? Explain you answer. (10 marks) (b) What is the required rate of return on a common stock that is expected to pay a $0.75 annual dividend next year if dividends are expected to grow at 2 percent annually and the current stock price is $8.59? (6 marks)

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