Meridian Inc. is a fast-growing drug company. Management forecasts that in the first four years, the companys dividend growth rates will be 20 percent for two years, 25 percent, and 20 percent respectively. The company expects to pay a dividend of $2.20 next year. After four years, management expects dividend growth to stabilize at a rate of 6 percent. The required rate of return is 10 percent.

1.What are the dividends for the first four years.

2.Calculate the price of the stock at the end of year 4, when the firm settles to a constant-growth rate.

3.What is the current price of the stock (P0)?

4.Would you purchase this stock if it was offered to you at $100. Why?