You've just learned that Graham Records has purchased the lifetime distribution rights to the music of a new band called the French Fries. Based on this good news you've estimated that Graham Records should pay $4 in dividends next year. You also think that the dividends paid out should increase by 5 percent a year indefinitely. As a knowledgeable investor, you've determined your required rate of return is 9 percent.

a. What is your estimate of the value of Graham Records common stock?

b. What would the value of the stock be if you did not anticipate any increase in the dividend over time?

c. If the required rate of return increased to 12 percent, what would happen to the stock price?