Earnings and dividends for Dillon Technologies Corporation, Inc. (DTCI) have been growing at a rate of 18% per year in recent years. DTCI's common stock trades on the NASDAQ exchange.

An investment analyst for an insurance company's investment portfolio observes that DTCI's earnings and dividends recently have grown at an annualized rate of 18%. The analyst estimates that DTCI's 18% earnings and dividends will persist for two more years, then stabilize at a sustainable 3% annual growth beginning three years from now.

The insurance company's investment fund analyst uses the valuation technique that will value directly DTCI's intrinsic value per share .

Other information:

• The S&P 500 index is a widely accepted metric for the return delivered by the entire equity market. The S&P 500 recently has returned an annualized yield of 12%.
• DTCI's most recent dividend was $2.00 per common share.
• DTCI's most recent earnings per share (EPS) was $5.00.
• The website GuruFocus recently reported DTCI's weighted average cost of capital (WACC) at 8%.
• According to finance.yahoo.com, DTCI's beta statistic is 1.25.
• DTCI has 10,000 common shares outstanding.
• Short-term treasury bills recently have shown an annual yield of 2%.
• Long-term corporate bonds recently have yielded 4% more than short-term treasury bills.
• DTCI's debt-to-equity ratio is 45%.

TASKS >>

1 -- Determine the most that the insurance company investment manager should pay per share for DTCI's common shares.

• UPLOAD a phone image [or phone PDF] of your work.

2 -- NARRATIVE >> Explain in terms that a non-financial professional would understand how the "dividend discount model" of stock valuation differs from the "enterprise model" of stock valuation.