Question 1: Uncertain Dividends (15 points) Chelsea would like to purchase $500 worth of shares from Peretti Industries. She believes future dividends are uncertain but has some expectations of what they might be. Specifically, she expects there to be a "high" dividend state and a "low dividend" state each year, with probability 1/2 that each will occur. States of the world between years are independent. After year 5, she believes the Peretti Industries will collapse. a) (3 points) Chelsea believes the correct cost of capital is 2% annually and that the market is competitive. What should the price of one share be? You can use the Excel NPV function or manual calculation. b) (3 points) If the market share price was $7.66, would she purchase shares of Peretti Industries, under the NPV rule? Why or why not? c) (3 points) If Buzzfeed Inc was promising an annual dividend of $0.07 which grows in perpetuity by 1% every year after next year, what would the competitive price of one share of Buzzfeed Inc be? Assume the same opportunity cost as a). d) (3 points) Under the profitability index rule, should Chelsea purchase shares of Buzzfeed Inc or Peretti Industries? Why? Assume the share price of Peretti Industries as detailed in b). e) (3 points) Following your answer from part d), how many shares can Chelsea purchase with her $500