Apex Financial Ltd. is interested in investing in Scion Systems Inc. Scion's current dividend is $5.50 and its shares are selling for $40. The required rate of return for firms like Scion is 8 percent. Apex has conducted an extensive analysis of the company and believes that the dividend growth rate should be 5 percent.

a)Should Apex buy the stock at $40? Why or why not?

b)Do you expect the stock price to stay at $40? Explain.