Blue Ocean Co. has just paid dividends of $4.20. The dividend is expected to grow at a constant rate of 6% for the next 2 years (i.e. till the end of year 2). Thereafter, the dividend is expected to grow at a lower rate of 2% every year. The risk-free rate is 1.8%, beta of the stock is 1.3 and the expected market return is 7%.

Calculate the value of Blue Ocean Co.s stock. (10 marks)

ANSWER USING BOTH EXCEL AND MANUAL WORKINGS.