It is now January 1, 2015. Reagan Electric Inc. (REI) has just developed a solar panel capable of generating 300 percent more electricity than any solar panel currently on the market. As a result, REI is expected to experience a 12 percent annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology, and REIs growth rate will slow to 5 percent per year indefinitely. Stockholders require a return of 8 percent on REIs stock. The most recent annual dividend (D₀), which was paid yesterday, was $1.50 per share.

1. Calculate REIs the value of the stock today P₀, at the end of 1^st year P₁, P₂, P₃ and P₄. (10 marks)

2. Calculate the expected dividend yields for 2015, 2016, 2017, 2018 and 2019. (5 marks)

3. Calculate the expected Capital Gain for 2015, 2016, 2017, 2018 and 2019. (5 marks)

4. How might an investors tax situation affect his or her decision to purchase stocks of companies in the early stages of their lives, when they are growing rapidly, versus stocks of older, more mature firms? (5 marks)