1. The Fijian Holding Limited's last dividend was $1.25 and the directors expect to maintain the historic 4 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share.

i. How much should you be willing to pay for the stock if you require a 16 percent return?

ii. How much should you be willing to pay for the stock if you feel that the 7 percent growth rate can be maintained indefinitely and you require a 16 percent return?

2. Communications Fiji Limited just paid dividends of $2 per share. Assume that over the next three years dividends will grow as follows, 5% next year, 15% in year two, and 25% in year 3. After that growth is expected to level off to a constant growth rate of 10% per year. The required rate of return is 15%. Calculate the intrinsic value using the multistage model.

3. Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next five years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%. i. Calculate the dividends for years 1, 2, and 3. (3 Marks)

ii. What is the price of the stock in year 5? (3 Marks)

iii. Calculate the present value today of dividends for years 1 to 5. (3 Marks)

iv. What is the price of the stock today (P0)? (3 Marks