Stock Valuation: The opportunity cost of capital is 10 percent. Which stock has a greater value? Stock A is expected to provide a cash dividend of $10 a share forever. Stock B is expected to pay a...

Stock Valuation:

1. The opportunity cost of capital is 10 percent. Which stock has a greater value?
   
   
   
   1. Stock A is expected to provide a cash dividend of $10 a share forever.
   
   
   2. Stock B is expected to pay a cash dividend of $5 per share next year. Thereafter, dividend growth is expected to be 4 percent a year forever.
   
   
   3. Stock C is expected to pay $10 in annual cash dividends at the end of years 1, 2 and 3. Then, the stock is sold (immediately after paying its year-end 3 cash flow of $10) for $100.
   
   
   4. Stock D belongs to Potato Corp. For the coming year, Potato is expected to report earnings per share of $5 and pay out a cash dividend per share of $2. Assume that Potato will be able to maintain its current dividend payout ratio and continue to earn a 15% rate of return on equity for the foreseeable future. The applicable opportunity cost is 10%