$3\mathrm{.}2.$ The company has just publicly announced a new investment. The market expects that with

this new investment the dividends should start growing immediately at $3$ percent per year

forever. Assuming that the discount rate remains the same, what will be the current price

of the stock after the announcement? $[9$ points$]$

ANSWER: $

per share

$3\mathrm{.}3.$ You did your own analysis, and you believe that with this new investment the company

will still pay an annual dividend of $$4$ per share in the next three years, and only after that,

the dividends will start growing at a constant rate of $3$ percent per year forever. Assuming

that the discount rate remains the same, how much should you be willing to pay for this

stock today? $[9$ points$]$Problem $3.$ Currently, Xavier Inc. pays a constant dividend of $$4$ per share per year. The required

rate of return for this stock is $12$ percent. Calculate the current market price for Xavier Inc.$\text{'}$s

common stock based on the following information.

$3\mathrm{.}1.$ If Xavier continues to pay an annual dividend of $$4$ per share forever, how much should

you be willing to pay for this stock? $[9$ points$]$