A local wine equipment manufacturer is planning to issue stocks. The company just paid a dividend of $3.40. Analysts expect the dividends to grow at an annual rate of 4.5% for the foreseeable future.

a. If investors are expected to demand a rate of return of 11%, what should be the price of the share if the dividend growth model is used?

b. After examining company statements, the analysts have revised their forecasts. They now expect no dividends to be paid for the next three years. Instead, the first dividend of $3.40 is expected to be paid at the end of year 4 and will remain at $3.40 for years 5 and 6. Thereafter the dividends are expected to grow at an annual rate of 6%. What is the new price of the shares given these revised forecasts? Assume a rate of return of 11%.

c. Instead, the manufacturer announces that they will pay a constant dividend of $3.40 indefinitely. How much is this stock worth?

d. Analysts dont think the wine manufacturer will pay the constant dividend forever. They expect the firm to pay $3.40 dividend for nine years and then cease dividend payments forever. What should be the share price?

e. Evaluate the following statement: Managers should not focus on maximizing shareholders wealth because doing so will cause them to neglect meeting other obligations such as payroll and interest expenses.