Question 2\ [25 Marks]\ a) We Are Life Limited (WALL) has done it again by creating a vaccine for the monkey pox virus. This will lead to higher rates of growth over the next three (3) years. WALL is expected to pay a dividend of

$5.70

next year after which dividends should see growth rates of

20%,15%

and

10%

respectively, in the following 3 years. Dividend growth is then expected to be

3%

for the foreseeable future. The cost of capital is

21%

.\ i.) Calculate the expected share price today

(P_(0))

. (Round each dividend to 2 decimal places)\ (10 Marks)\ ii.) Calculate the expected share price one year from today

(P_(1))

.\ (7 Marks)\ iii.) Calculate the expected share price three years from today

(P_(3))

.\ (4 Marks)\ b) Your friend has developed an interest in the stock market, having seen the tremendous gains made by some stocks. She has been told that she should be able to identify the stocks that are currently trading at their equilibrium price. Explain to her what it means for a stock to be at its equilibrium price.\ (4 Marks)

a) We Are Life Limited (WALL) has done it again by creating a vaccine for the monkey pox virus. This will lead to higher rates of growth over the next three (3) years. WALL is expected to pay a dividend of $5.70 next year after which dividends should see growth rates of 20%,15% and 10% respectively, in the following 3 years. Dividend growth is then expected to be 3% for the foreseeable future. The cost of capital is 21%. i.) Calculate the expected share price today (P0). (Round each dividend to 2 decimal places) (10 Marks) ii.) Calculate the expected share price one year from today (P1). (7 Marks) iii.) Calculate the expected share price three years from today (P3). (4 Marks) b) Your friend has developed an interest in the stock market, having seen the tremendous gains made by some stocks. She has been told that she should be able to identify the stocks that are currently trading at their equilibrium price. Explain to her what it means for a stock to be at its equilibrium price. (4 Marks)