Elixir Drug Company is expected to enjoy rapid growth from the introduction of its new back-rub ointment. The dividend of a share of Elixirs stock a year from today is expected to be $1. During the next four years (year 2 - year 5), the dividend is expected to grow at 10 percent per year. After that, the growth of the firm is expected to slow down. Starting in year 6, the ROE of the company is expected to be 10 percent and the company will distribute 60 percent of its earnings to shareholders as dividends. Calculate the present value of stock if the discount rate is 15 percent.

a. What is the present value of the first five dividends?

b. What is the growth rate of dividend starting in year 6?

c. What is the expected dividend per share at year 6?

d. What is the price of stock at the end of year 5?

e. What is the present value of all dividends as of today?

f. Suppose the stock is traded at $15 per share today, compared to your estimation above using DDM, which of the following statements are correct?

-The market perceived dividend growth rate is higher.

-The market perceived discount rate is higher than 15 percent.

-The market perceived payout ratio starting in year 6 is lower than 60%.

-The market perceived ROE starting in year 6 is lower than 10%.