Loveland Tech is an IT consulting firm. The firm has recently posted a Return on Equity of 13% due to the success of some of its projects. As a result, the firm retains some of its earnings, issuing dividends of just 40% of its net income. Loveland has 3 million shares outstanding; their earnings next year are expected to be $3.40 per share.

a.What is Lovelands' dividend growth rate?

b. If shareholders require a 16% rate of return for a stock with this amount of risk and they expect this growth rate (from part a.) to be perpetually sustainable, what would be the price of one share of Loveland Tech?

c. You believe that this growth rate is only sustainable for three years, after which Lovelands' dividends will grow at a more modest 5% annual rate forever (the dividend in year 4 will be higher than year 3 by the percentage calculated in part a. whereas the dividend in year 5 will be 5% higher than the dividend in year 4). What price would you be willing to pay now for one share of Loveland stock?

Please show all formulas and calculations. Please include excel screenshots if able.