38)

A )

After a recent IPO, SOME Co. has a unique dividend policy. Next year they anticipate paying out a $2 dividend. In year 2, they will increase the dividend to $2.50. In year 3, the dividend will increase to $3.50. After year 3, the dividend will grow at a constant rate of 4%. What is the current stock price? Assume that the required rate of return by shareholders is 10%.

B) Suppose a company just paid a dividend of $1.00 and plans on increasing the dividend each year at a constant rate of 5%. If the current rate required by share holders equals 12%, what is the current stock price?