App Inc., a manufacturer of home appliances, just reported earnings per share of $3, on which it paid dividends per share of $1.25. Earnings are expected to grow 18% a year over the next 5 years, during which period the dividend payout ratio is expected to remain unchanged. After year 5, the earnings growth rate is expected to drop to a stable rate of 6%, and the payout ratio is expected to remain the same. The firm has a beta of 1.50 currently, and it is expected to have a beta of 1.05 during the stable growth period. The Treasury bond rate is 6%. The equity risk premium is 5%.

a. Estimate the cost of equity during the high growth period (1 marks)

b. Estimate the cost of equity during the stable growth period (1marks)

c. Estimate the expected dividend to be paid at the end of year 5 (1marks)

d. Estimate the terminal value of App Inc at the end of year 5 (1 marks)