Q1. A firm is currently paying a dividend of $2.50. A stock analyst expects the dividend growth rate to decline linearly over the next seven years from 22% in the short run to 4% in the long run. If the required rate of return on the stock is 13%, the value of the stock is closest to:

options:

1) $42.94

2) $44.14

3) $46.39

4) $48.09

Q2. Which of the following is true regarding the residual income valuation model? I- Can be applied to any firm regardless of the dividend policy. II- They can only be applied to firm with positive free cash flows III- Valuation with residual income models is relatively less sensitive to terminal value estimates. IV- These models focus on accounting profitability rather than just economic profitability

options:

1) I and II

2) II, III and IV

3) I and III

4) All of the above