Nonconstant Growth. Better Mousetraps has come out with an improved product, and the world is beating a path to its door. As a result, the firm projects growth of 20 percent per year for 4 years. By then, other firms will have copycat technology, competition will drive down profit margins, and the sustainable growth rate will fall to 5 percent. The most recent annual dividend was DIV0 = $1.00 per share.

a. What are the expected values of DIV₁, DIV₂, DIV₃, and DIV₄?

b. What is the expected stock price 4 years from now? The discount rate is 10 percent.

c. What is the stock price today?

d. Find the dividend yield, DIV₁/P₀.

e. What will next year’s stock price, P₁, be?

f. What is the expected rate of return to an investor who buys the stock now and sells it in 1 year?