Outback Corporation paid a dividend of $2 per share over the last 12 months. The dividend is expected to grow at a rate of 30 percent over the next three years (supernormal growth). It will then grow at a normal, constant rate of 5 percent for the foreseeable future. The required rate of return is 10 percent (this will also serve as the discount rate) What is the present value of the dividends paid during the period of supernormal growth? What is the price of the stock at the end of the third year?

Select one:

a. $4.98, $65.45

b. $8.45, $92.20

c. $5.42, $71

d. $6.51, $83.50