5) Middle Earth Limited has just paid an annual dividend of $2 a share. The firm announced the dividend

will increase by 5 percent per year for the next two years and after which, the dividend will grow at a

constant rate of 8 percent per year forever. The required return on this stock is 14 percent. What is the

current value per share?

6)

Western Limited has just paid a preferred dividend of $0.50 per preferred stock and a common dividend

of $0.40 per common stock. After observing the dividends paid by the company, Frank made the

following comment:

The preferred shareholders of this company have just received a higher dividend compared to the

common shareholders. Furthermore, preferred dividends have priority over common dividends in the

payment of dividends. I will be better off buying preferred shares than common shares of this company

Discuss about the above comment made by Frank?