R2-D2 Inc. most recent earnings were $4 per share. The firm Return on Equity is 25%, and its stock beta is 1.50. Assume a risk-free rate of 1.0% and market risk premium of 6.0%. R2-D2 Management is interested in the resulting stock price under the following dividend payment and expansion policies: They hire you to compute the resulting stock price for each of the two choices (show all your computations).

a. A permanent 80% payout ratio that is expected to continue in perpetuity.

b. Fifteen years of no dividend (0% payout ratio) followed by 80% payout ratio in perpetuity (first dividend payment in year sixteen).