Martin Office Supplies paid a $3 dividend last year. The dividend is expected to grow at a constant rate of 5 percent over the next four years. The required rate of return is 14 percent (this will also serve as the discount rate in this problem). UseAppendix Bfor an approximate answer but calculate your final answer using the formula and financial calculator methods.

a.Compute the anticipated value of the dividends for the next four years.(Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Anticipated Value

D1

D2

D3

D4

b.Calculate the present value of each of the anticipated dividends at a discount rate of 14 percent.(Do not round intermediate calculations. Round your final answers to 2 decimal places.)

PV of Dividends

D1

D2

D3

D4

TOTAL

c.Compute the price of the stock at the end of the fourth year (P₄).(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

STOCK PRICE AT YEAR 4 $__________

d.Calculate the present value of the year 4 stock price at a discount rate of 14 percent.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

PRESENT VALUE OF YEAR 4 STOCK PRICE $__________

e.Compute the current value of the stock.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

CURRENT VALUE ___________

f.Use the formula given below to show that it will provide approximately the same answer as parte.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

P₀

=

D₁

K_eg

CURRENT VALUE ___________

g.If current EPS were equal to $4.20 and the P/E ratio is 6% higher than the industry average of 8, what would the stock price be?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

STOCK PRICE ____________

h.By what dollar amount is the stock price in partgdifferent from the stock price in partf?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

AMOUNT ______________

i.With regard to the stock price in partf, indicate which direction it would move if:

(1)D1 increases STOCK PRICE DECREASE OR INCREASE

(2)Ke increases STOCK PRICE DECREASE OR INCREASE FOR EACH OF THE BELOW

(3)g increases STOCK PRICE DECREASE OR INCREASE FOR EACH OF THE BELOW