1)A C corporation earns $10 per share before taxes

1)A C corporation earns $10 per share before taxes. After it has paid taxes, it will distribute the rest of its earnings as dividends. The dividend is income to you, so you will pay taxes on these earnings. The corporate tax rate is 40% and your personal dividend tax rate is 15%. How much of the earnings remain after all taxes are paid? a) $0.90 b) $ 4.00 c) $6.00 d) $5.10

2)

Assume Gillette Corporation will pay an annual dividend of

$0.68

one year from now. Analysts expect this dividend to grow at

12.7%

per year thereafter until the

sixth

year.? Thereafter, growth will level off at

2.1%

per year. According to the? DDM, what is the value of a share of Gillette stock if the? firm's equity cost of capital is

7.4%??

3)You wish to purchase shares in two companies of the following six that are available: Company A with an expected return of 10% with a standard deviation of 10% Company B with an expected return of 10% with a standard deviation of 15% Company C with an expected return of 15% with a standard deviation of 15% Company D with an expected return of 10% with a standard deviation of 20% Company E with an expected return of 15% with a standard deviation of 20% Company F with an expected return of 20% with a standard deviation of 20% . . . Required: a) Plot these shares on a risk/return graph such as indicated below. (5) 20 15 Return % 10 5 % 1 1 10 15 20 Risk (Standard Deviation) b) As an investor who is willing to take risks in the hope of retiring early, which two shares would you buy? Explain. (5) c) As a cautious investor who requires a steady return on your investments, which two shares would you buy? Explain.