6. The Cart Wheel plans to pay an annual dividend of $1.20 per share next year, $1.00 per share a year for the following two years, and then cease paying dividends altogether. How much is one share of this stock worth to you today if you require a 17% rate of return

Price per share = $2.38

Explanation:

Using the dividend discount model, we can calculate the fair price per share of the stock.

The formula for price is,

P = D1 / 1+r + D2 / (1+r)^2 + ... and so on

Where,

Thus, Price for such a stock is,

P = 1.2 / (1+0.17) + 1 / (1+0.17)^2 + 1 / (1+0.17)^3    => $2.3805

TRUE

Explanation:

TRUE, in the question, the government is going to auction off permits equal to one third of total emissions in the economy (so two-thirds of all emissions must be abated)

however, the firm will buy 100 permits even though thir marginal cost is below $ 15. because here the firm will get a monopoly in holding the permits of one third of total emissions in the economy. this is such a huge benefit for the firm and by acquiring this permits the firm can transfer the permission permits to other firm with high price or they can distribute the permits of emission among the different firms below the size of the emission permits holding firm. thus, even though marginal abatement cost of$8 has a special opportunity to buy 100 permits at a price of $15 per permits, the firm will resort to buy the permits. the power in handling the emission permits and the monopoly getting the firm in holding the permits allow the firm to act as a leader in the economy compared to other firm who don't have the emission permits. thus, the money gain and the authority gaining in emission permit hold the firm to buy the permits even though their marginal cost is below $15