a) Explain the preemptive right.b) What is the classified st
a) Explain the preemptive right.b) What is the classified stock?Refer to the following examples for part c) and d)A firm is expected to pay a $2 dividend per share next year and its dividend is expected to grow at a constant rate of 6% per year. If the required rate of return on the firm’s stock is 10%, what is the firm’s stock price (or intrinsic price) today?Because the dividend has a constant growth rate from the next year, the constant growth model can be used. According to the constant growth model, Stock price (intrinsic price) today = the next year’s dividend per share / (required rate of return – dividend growth rate) = $2/(0.1 – 0.06) = $50.A firm has just paid a $1.5 dividend per share. If the required rate of return is 12% and the constant growth rate is 5%, what is the stock price (intrinsic price) today? $1.5 dividend is today’s dividend, not the next year’s. So, we need the next year’s dividend to use the constant growth model. Since the dividend grows at a 5% constant rate, the next year’s dividend should be 1.5*(1+.05) = $1.58 (=> Actually this is the future value of today’s dividend)Then, the stock price today = 1.58/(.12 – .05) = $22.57c) Suppose that Troy Inc. has just paid a $3 dividend per share. If the required rate of return is 15% and the dividend is expected to grow at a constant rate of 4%, what is the stock price today?d) BMC is expected to pay a $1 dividend per share next year. If the stock price today is $20, what is the required rate of return? Assume that the dividend is expected to grow at a constant growth rate of 3%.
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