A) The next dividend per share by Food Rabbits Inc., will be $2.85. The dividends are anticipated to maintain a 6% growth rate forever. If the current share price of Food
Rabbits currently is $58, find out (1) the required return (2) dividend yield and (3) the
expected capital gains yield. (5 marks)
b) Last month, Kowloon Airlines Company Limited, which had been having trouble
with income drops and cost overruns caused by the worldwide pandemic, announced
that it determined “temporarily suspending the dividend payments due to the cash flow
crunch associated with pandemic.” The company’s stock price dropped from $7.10 to
$5.95 when this announcement was made. Briefly explain why the announcement
would cause this change in the stock price.