a. Consider the model in section 8.3. Make two changes in the model: i) Let debt be the plug and keep cash constant at its year-0 level. ii) Suppose that the firm has 1000 shares and that it decides to pay, in year 1, a dividend per share of 15 cents. In addition, suppose that it wants this dividend per share to grow in subsequent years by 12% per year. Incorporate these changes into the pro forma model.

b. Do a sensitivity analysis in which you show the effect on the debt/equity ratio of the annual growth rate of dividends. Vary this rate from 0% to 18%, in steps of 2%.