1. Estimate the value of Manufactured Earnings' stock at the beginning of 2003 under the following assumptions: (1) the company's book value of equity per share is $5 at the beginning of 2003; (2) its earnings per share is forecasted to be $2 in 2003, $2.20 in 2004, $2.40 in 2005, $2.60 in year 2006, $2.80 in year 2007, and $3.00 in year 2008 and beyond; (3) its dividend per share is forecasted to be $1.50 in year 2003, $1.70 in 2004, $1.90 in 2005, $2.10 in year 2006, $2.30 in year 2007, and $3.00 in year 2008 and beyond; and (4) the company's cost of equity in 20%.

2. How would the value of Manufactured Earnings' stock change if its management accelerated the recognition of revenues in 2003 relative to the forecasts provided in last question. The change in accounting will increase 2003 earnings by $0.50 per share and decrease earnings in 2004 by the same amount. Earnings in all other years will remain the same. Assume also that the company's dividend payments are unchanged.