An analyst obtains the following information from a company's latest financial statements and other sources:

Earnings per share:$2Risk-free rate:4%

Book value of Equity per share:$20Expected market return:9%

Dividend per share:$1Beta:1.2

The analyst forecast that the company's earnings and dividends will grow by 10% next year and then by 5% every year infinitely. You also expect the clean surplus condition holds and the cost of equity will remain unchanged in the future.

Please answer all sub-questions below.

a. Calculate the company's cost of equity. (5 marks)

b. Forecast the company's dividend per share in each of the next three years. Use the discounted dividend model to find the company's value of equity. (10 marks)

c. Forecast the company's abnormal earnings per share for each of the next three years. Use the discounted abnormal earnings model to find the company's value of equity. (10 marks)