1. Gee-Gee’s is going to pay an annual dividend of $2.05 a share on its common stock next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 10.9 percent?

$26.94

$28.30

$26.28

$27.61

$27.00

2. FLIPCO’s free cash flow from assets (to the firm) is reported to be $205 million. The firm’s interest expense is $22 million. Assume the tax rate is 35% and the net debt of the firm increases by $3 million. What is the market value of equity if the free cash flow to equity is projected to grow at 3% indefinitely and the cost of equity is 12%?

A. $225 million

B. $2.217 billion

C. $193.7 million

D. $1.4 billion