2. As an analyst at Churnem & Bernem Securities, you are responsible for making recommendations to your firms clients regarding common stocks. After gathering data on Denver Semiconductors, you have found that its dividend has been growing at a rate of 8% per year to the current (D₀) $1.20 per share. You believe that an appropriate rate of return for this stock is 12% per year.

A)If you expect that the dividend will grow at an 8% rate forever, what is the highest price at which you would recommend purchasing this stock to your clients?

B)Suppose now that you believe that the companys new product line will cause much higher growth in the near future. Your new estimate is for a 20% annual growth for the first 3-year period, followed by an 8% growth rate thereafter. Using these new assumptions, what is the value of the stock?