HRM manufactures state of art sound systems. Analysts following

HRM predict that the company's earnings and dividends will

continue to grow at 18% for the next period. After that, growth will

level off at 4% for the indefinite future. The last dividend was $1.50

per share and analysts figure that the required return on this stock

should be 18%.

1. What is the value of an HRM share assuming that growth at the rate

of 18% will continue for seven years?

What is the value of an HRM share assuming that growth will drop

immediately to the longrun rate of 6%?

3.

Suppose that HRM is currently trading at $47 per share. How many

years of growth at 18% is the market predicting? How could you use

your answer to decide whether to buy HRM shares