Medtronic Inc., the world’s largest manufacturer of implantable biomedical devices, reported earnings per share in 1993 of $3.95, and paid dividends per share of $0.68. Its earnings were expected to grow 16% from 1994 to 1998, but the growth rate was expected to decline each year after that to a stable growth rate of 6% in 2003. The payout ratio was expected to remain unchanged from 1994 to 1998, after which it would increase each year to reach 60% in steady state. The stock was expected to have a beta of 1.25 from 1994 to 1998, after which the beta would decline each year to reach 1.00 by the time the firm becomes stable. (The Treasury bond rate is 6.25%, and the risk premium is 5.5%.)

a. Assuming that the growth rate declines linearly (and the payout ratio increases linearly) from 1999 to 2003, estimate the dividends per share each year from 1994 to 2003.

b. Estimate the expected price at the end of 2003.

c. Estimate the value per share, using the three-stage dividend discount model.