Question

Maxwell Mining Company's ore reserves are being depleted, so its sales are falling. Also, because its pit is getting deeper each year, its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 7% per year. If D₀ = $5 and r_s = 16%, what is the value of Maxwell Mining's stock? Round your answer to the nearest cent.

$______

A stock is expected to pay a dividend of $1.00 at the end of the year (i.e., D₁ = $1.00), and it should continue to grow at a constant rate of 3% a year. If its required return is 12%, what is the stock's expected price 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

$______

Answer 1

Given information

For Maxwell mining

dividend at year 0 = $5

return on investment = rc = Ke = 16%

groth rate = g= -7%( negetive)

For other company

dividend at year 1 = D1= $1.00

Groth rate. = g = 3%

Required rate of return = Ke= 12%

Answers will be

1) Value of Maxwell mining stock = $20.2174

2) Stock price expected to be two years from today is =$11.7878