8-11: Valuing Common Stocks with the Dividend Growth Model Problem 8-19 Constant Growth Stock Valuation You are analyzing Jillian's Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $2.75 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, if you buy the stock; you plan to hold it for 3 years and then sell it. a. What dividends do you expect for JJ stock over the next 3 years? In other words, calculate D1, D2 and D3. Note that Do = $2.75. Round your answers to the nearest cent. 1. D1 = $ 2. D2 = $ 8 3. D3 = $ X b. JJ's stock has a required return of 13%, and so this is the rate you'll use to discount dividends. Find the present value of the dividend stream; that is, calculate the PV of D1, D2, and D3, and then sum these PVs. Round your answer to the nearest cent. $ C. JJ stock should trade for $41.78 3 years from now (i.e., you expect s = $41.78). Discounted at a 13% rate, what is the present value of this expected future stock price? In other words, calculate the PV of $41.78. Round your answer to the nearest cent. X $ d. If you plan to buy the stock, hold it for 3 years, and then sell it for $41.78, what is the most you should pay for it? Round your answer to the nearest cent. $ e. Use the constant growth model to calculate the present value of this stock. Assume that g = 5%, and it is constant. Round your answer to the nearest cent