(i) Your broker recommends that you purchase XYZ Inc. at $60. The stock pays a $2.40 dividend which is expected to grow annually at 8 percent. If you want to earn 12 percent on your funds, is this a good buy?

(ii) Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be Year Dividend 1 $1.20 2 1.44 3 1.73 4 2.07 After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?