1) A company has just paid a dividend of $5 per share. Dividends are expected to increase at 5% per year forever. What is the companys share value if the companys market capitalization (or discount) rate is 15%? Assume the dividend growth model holds.

2) ABC Inc. expects the next years earnings of $10 million and the earnings will grow at a constant rate of 2 percent per year. Currently, all earnings are paid out as dividends. The company plans to expand its operation to an emerging market. This project will start two years from now and would be financed by internal funds. It requires 50 percent of the earnings in the corresponding year. The project would start generating revenues one year after its launch. The first cash flow is $1 million and it will grow at a rate of 5 percent per year. The company has 7.5 million shares of stock outstanding. Estimate the value of the stock. The discount rate is 10 percent.