Non constant growth. ABC has come out with an improved product. As a result the firm projects growth of 20% per year for 4 years. By then other firms will have copycat technology, competition will drive down profit margins and the sustainable growth will fall to 5%. The most recent annual dividend was DIV0=1 per share.

i) What are the expected values of DIV1, DIV2, DIV3 and DIV4?

ii) What is the expected stock price 4 years from now? The discount rate is 10%.

iii) What is the stock price today?

iv) Find the dividend yield DIV1/P0

v) What will next year's stock price P1, be?

vi) What is the expected rate of return to an investor who buys the stock now and sells it in 1 year?