Based on your analysis of previous financial statements, you found that the dividend-paying behavior of companies that in the past were in a good financial position, and estimate the following:

Dividends will grow by 30% in the first year,

then by 20% the second year,

then by 15% in the third year,

then by 4% for all the years to follow.

If a companys last dividend was $1.5, find the estimated values of the dividends for the coming 4 years (D1, D2, D3, and D4). [4 marks, b1]

If the stock required rate of return is 16%, use the Dividend Growth Model to find the stock price in Year 3. [4 marks, b1]

What is the stock price of this year (P0)? [4 marks, b1]

If the stock price is trading at $20, analyze and formulate a strategy for investment in the stock. [8 marks, c2]