Question $1$

Q$1$a$.$ White Lotus Inc has just been granted a patent from the US Patent Office and the company

is set to manufacture lithium$-$ion batteries using their latest technology. Over the next $5$ years,

the company projects that they can grow by $25\%$ annually. From year $6$ onwards, the company

estimates they will reach a sustainable growth due to fierce competitions within the industry.

The long$-$term growth rate is expected to be $4\%.$ The company has just paid a $$1$ dividend per

share.

a$.$ What is the expected annual dividend over the next $5$ years?

b$.$ Assuming that the firm's cost of equity is $12\mathrm{.}5\%,$ what is the expected stock price $5$

years from now?

c$.$ Estimate the company's stock price today.

d$.$ What is the expected dividend yield?

e$.$ Estimate the company's stock price at year $1,P_1.$

f$.$ Assume that you're among the company's investors who buys the stock now. You plan

to sell the stock in $1$ year. What is your expected rate of return? If the stock is fairly

priced, what can you infer of your expected rate of return?