1. Tara Inc, will pay a dividend of $2.00 per share in one year. You expect the dividend to grow by 12% and 10% in the 2 following years and then grow by 3% forever. If you require a rate of return of 10%, what is the most you should be willing to pay for a share of this stock?
2. Suppose Acap Corporation will pay a dividend of $2.85 per share at the end of this year, and $3.08 per share next year. You expect Acap's stock price to be $50.82 in two years. If Acap's equity cost of capital is 8.7%:
a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?
b. Suppose instead you plan to hold the stock for one year. What price would you expect to be able to sell a share of Acap stock for in one year?