Global Systems Inc. has just paid $2 in dividends (D0 = $2). The firm is expected to

Question:

Global Systems Inc. has just paid $2 in dividends (D0 = $2). The firm is expected to continue paying dividends in perpetuity.

a. Suppose that the dividends are constant (Di = $2 for all i). What will be the stock price of a share of Global Systems Inc. in 17 years if the required rate of return is 10 percent?

b. Suppose that the dividends are expected to grow by 5 percent each year in perpetuity.

What will be the price of a share of Global Systems Inc. in 17 years if the required rate of return is 10 percent? What will be the price in 15 years and in 25 years?

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