A stocks current annual dividend is $1.5 per share and its beta is 1.2. The stock is currently traded at $60 per share. Assume that the CAPM holds, that the risk-free rate is 2%, and that the market risk premium is 6%.

a) Suppose that future expected returns and expected dividend growth will be constant forever. What does the market expect the perpetual average growth rate for this stock to be?

b) Imagine that the company found a way to cut production costs. The innovation implies that dividends are now expected to grow at an annual rate of 8%. Assume that the beta remains at 1.2. Find the expected return of the stock after the increase in expected dividend growth rate.

c) Use the information in (b), find the price after the increase in expected dividend growth rate.

d). Now assume that the innovation in (b) will make the firm more exposed to systematic risk so that its beta increases to 1.3. What is the stock price after the two changes (i.e., beta of 1.3 and expected dividend growth of 8%)?