$1$

$1$ point

Elixir Drug Company is expected to enjoy rapid growth from the introduction of its new back$-$rub ointment. The dividend of a share of Elixir's stock a year from today is expected to be $$1.$ During the next four years $($year $2-$ year $5),$ the dividend is expected to grow at $10$ percent per year. After that, the growth of the firm is expected to slow down. Starting in year $6,$ the dividend is expected to grow at a constant rate of $4$ percent. Calculate the present value of stock if the discount rate is $15$ percent.

a$.$ What is the present value of the first five dividends?

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$2$

$1$ point

b$.$ What is the expected dividend per share at year $6?$

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$3$

$1$ point

c$.$ What is the price of stock at the end of year $5?$

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$4$

$1$ point

d$.$ What is the present value of all dividends as of today?

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$5$

$1$ point

e$.$ Suppose the stock is traded at $$15$ per share today, compared to your estimation above using DDM$,$ which of the following statements is correct?

The market perceived dividend growth rate is higher.

The market perceived discount rate is higher than $15$ percent.

The market perceived first$-$year dividend is lower than $$1.$