I. Question $1$

Dividend discount model is the starting point of the stock valuation framework. This question

pertains to common equity valuation using this model.

The following table contains information about the estimated next year's EPS, payout

ratio, shareholders' required rate of return, and return on equity of four different companies:

a$)$ Calculate each company's future earnings growth rate. Using the earnings model,

what is the value of the stock?

b$)$ Using the constant$-$growth dividend discount model, what is the value of the stock?

c$)$ Assume that the companies will experience the growth rate determined in part $($a$)$

for a short period of time, and after that the firms will grow at a lower rate. These

periods of time and second growth rates are presented in the table below. Using the

two$-$stage dividend growth model, what is the value of the stock?