Q2 B. (20 Marks) I 1. Answer in few sentences (10 Marks) a. What is dividend and how is it related to tax? b. How does dividend play a major role in valuation of stock? 2. Show all your calculations (10 Marks) a. ABC Company is increasing next year's dividend to $5.00 per share. The forecast stock price next year is $105.00 Equally risky stocks of other companies offer expected rates of return of 10%. What should ABC's common stock sell for? b. Assume that ABC's dividend and share price are expected to grow at a constant 5% per year. Calculate the current value of ABC's stock with the dividend discount model using a three year's horizon