Equity valuation (30 marks) ZRide expects to have earnings this coming year of $5 per share (i.e. EPS for Year 1 is $5). From year 2 onwards, earnings are expected to grow by 8% per year, and this earnings growth rate will continue in perpetuity. ZRide plans to retain all of its earnings for the first two years (years 1 and 2). In the next two years (years 3 and 4), the firm will retain 50% of its earnings. Finally, from year 5 onwards it will retain 30% of its earnings. Earnings that are not retained will be paid out as dividends. Assume ZRide's share count remains constant and all earnings growth comes from the investment of retained earnings (Note for clarification: Assume that the growth rate is not affected by the retention rate - i.e. it stays at 8% throughout this problem). ZRide's equity cost of capital is 10%. a) [8 marks] Calculate DIV1, DIV2, DIV3, DIVA and DIV b) [3 marks] Calculate Ps the expected stock price five years from now c) [5 marks] What is ZRide's stock price today? d) [5 marks] What is the expected rate of return to an investor who buys the stock now and sells it in one year? Calculate the breakdown between dividend yield and capital gains yield for year 1. e) [3 marks] How do you expect dividend yield and capital gains yield to change relative to each other over time from Year 1 to Year 5? f) [3 marks] If ZRide share is trading today at $160, would you buy it? How about $180? How do you expect the price to change in this two cases? Explain briefly. g) [3 marks] Discuss the limitations of the dividend growth model, and propose an alternative valuation model that could mitigate some of these limitations