Question: Question 2. Use the information for the questions below. Suppose a public firm is expected to increase dividends by 20% in one year and by

Question 2. Use the information for the questions below. Suppose a public firm is expected to increase dividends by 20% in one year and by 15% in two years. After that dividends will increase at a rate of 5% per year indefinitely. The firm has just paid a dividend of $1 per share. The required return is 20%. a) Calculate the value of the stock. (14 marks) b) Assume that the stock is currently trading at $9 per share, is it over-priced, under-priced, or fairly priced? What is your investment strategy based on the above analysis? (6 marks)

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