Assume the risk-free rate is 6 percent and the market risk premium is 6 percent. The stock of Clinicians Care Alliance (PCA) has a beta of 1.5. The last dividend paid by PCA (D₀) was $2 per share.

a. What would PCA’s stock value be if the dividend were expected to grow at a constant:

• −5 percent?

• 0 percent?

• 5 percent?

• 10 percent?

b. What would be the stock value if the growth rate were 10 percent but PCA’s beta fell to:

• 1.0?

• 0.5?