1. Credenza Industries is expected to pay a dividend of $1.20 at the end of the coming year. It is expected to sell for $62.00 at the end of the year. If its equity cost of capital is 8%, what is the price you would pay for this stock now?

2. Suppose you expect Longs Drug Stores to pay an annual dividend of $.56 per share in the coming year and to trade $45.50 per share at the end of the year. If investments with equivalent risk to Longs’ stock have an expected return of 6.80%, what is the most you would pay today for Longs’ stock?

3. Explain briefly how inflation is handed incremental cash flow analysis.