1.6 Ridgemont Can Company's last dividend was $1.55. You plan to purchase the stock today because you feel that the growth rate will increase to 4% for the next three years and the stock will then reach $14.00 per share. How much should you be willing to pay for the stock if you require a 15% return?

1.7 In the previous problem, the $14.00 is the stock price in year three. This represents the present value of all dividends from year 4 and beyond discounted back at the required return of 15%. If you believe that dividends from year 4 and beyond are going to grow at a constant rate, what must this rate be?