Lava Development Company has maintained stable earnings of $7 per share, and has also maintained a 100% payout policy. Recently, Lava has decided to start a new line of business to develop luxury housing with scenic views of active volcanoes. The new line will require Lava to change to a policy of retaining 30% of its earnings for the foreseeable future. You estimate that with the new line of business that dividends will grow by 2% per year in perpetuity (after next year). Lavas current cost of capital is 12%. a. Calculate the intrinsic value of Lava Development shares? b. Calculate Lavas net present value of growth opportunities?

PLEASE SHOW detailed calculation and explanation.