Phoenix industries has pulled off a miraculous recovery. Four years ago it was near bankruptcy. Today, it announced a $1 per share dividend to be paid a year from now, the first dividend since the crisis. Analysts expect dividends to increase by $1 a year for another two years (the dividend in year 2 will be $2 and the dividend in year 3 will be $3). After the third year (in which dividends are $3 per share) dividend growth is expected to settle down to a more moderate long-term growth rate of 6%. Assume that the firms investors expect to earn a return of 14% on this stock.

What is the terminal price of the Phoenix industries at the end of year 3, that is, what is P3 ?

What is the intrinsic value of the Phoenix industries stock, that is, what is P0 ?

If the current price of the stock in the market is $18 per share, the Phoenix industries stock is (compared to its intrinsic value)