a) Critically discuss the Dividend Discount Model. Present relevant formula and fully define each input variable. Identify limitations of this model, referencing key variables as necessary.

b) We are considering investing in a company that has just paid a dividend of $0.10 per share. Looking back in time we determined dividends grew at a rate of 10% per year. The required rate of return on this companys shares is 10%. Using the dividend growth model, what will be the share price in one years time? In your answer be sure to present the formula and assign all variables Discuss limitations of the dividend growth model.

c) A firm has earnings per share (EPS) of 0.50 per share. Investors assume EPS will grow by 10% per year indefinitely. Investors have determined the mean PE ratio of all other firms in the same industry in four years will be 4.0. The firm is expected to pay a dividend of 0.50 per share in perpetuity.

Calculate the share price in four years time.

Detail limitations of the PE share pricing model.