Matt's Lemonade Stand is one of the most up and coming places to get lemonade in

Amherst. I$\text{'}$m looking to take it public by splitting up the company into $100$ shares and

selling some of them.

a$)$ Suppose an inside source tells you that last summer the lemonade stand made $$1,000.$

They expect the same for all summers in the foreseeable future. You assign a discount

rate of $10\%$ annually. What are you willing to pay for a single share given the

information you've received from the inside source? $($Assume throughout that the firm

does not retain any of its earnings so that all earnings are paid to shareholders as

dividends$).$

b$)$ Suppose instead that I claim the information about cashflow last summer was correct

but I$\text{'}$m planning to expand to Northampton and Hadley so I think there will be $5\%$

growth forever. Now what are you willing to pay for a share if your required rate of

return does not change from $10\%?$

c$)$ You correctly point out that this growth will not be sustainable. Instead you think that

there will be $5\%$ growth for $10$ years after which, there will be no growth. What are

you willing to pay for a share again using a $10\%$ discount rate?

PLEASE SHOW THE STEPS FOR PART C