Dividends

4.3,000 shares of E&E Online booksellers that just paid a dividend of $3.50. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a 14 percent return on the stock for the first three years, a 12 percent return for the next three years, and a 10 percent return thereafter. 5.100 shares of Up All Night Video Games, Inc. This is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $10 per share dividend in 10 years and will increase the dividend by 5 percent per year thereafter. The required return on this stock is 14 percent. 6.2,500 shares of Cake in a Cup Bakeries, a rapidly growing company. Dividends are expected to grow at a 30 percent rate for the next three years, with the growth rate falling off to a constant 6 percent thereafter. The required return is 13 percent and the company just paid a $1.80 dividend.