Amazon is expected to pay a dividend of $7.00 per share next year (out of earnings of $15 per share). Assume that the required rate of return on the stock is 10% and dividends are growing at a current rate of 7% per year.

a) Calculate the present value of stock if the company would pay all of its earnings as dividends, i.e. $15, next year?

b) Calculate the present value of the growth opportunity for the stock (PVGO) assuming that it pays $7.00 with a growth rate of 7% per year.

c) Company Z is like Amazon in all respects except one: Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. What is Zs stock price? Assume next years EPS is $15, dividends is $7.

d) Why do you think a growth company like Amazon may experience a significant drop in price when it announced its first ever regular dividend along with huge profits, considering in terms of PVGO concept?