Modular Systems Inc. just paid dividend D₀, and it is expecting both earnings and dividends to grow by 0 percent in Year 2, by 5 percent in Year 3, and at a rate of 10 percent in Year 4 and thereafter. The required on Modular is 15 percent, and it sells at its equilibrium price P0 = $49.87. What is the expected value of the next dividend?

a. It cannot be estimated without more data.

b. $1.35

c. $1.85

d. $2.35

e. $2.85