Roberts Limited. has developed new technology that has given it a competitive advantage over its competitors. This, it expects will increase its profitability until its rivals can develop their own technological answers. The firm thinks that its advantage will last for three years, and estimates that its growth in profits and dividends will be 12% for the first year, 11% for the second and 9% the third year, before decreasing to a constant 5% starting in the fourth year. Cost of capital is expected to be 20%, and its last dividend was $1.65.

(i) What is the stock's terminal value? (5 marks)

(ii) What is the current share price (P0)? (8 marks)

(iii) What is the expected share price for the year (P2)? (6 marks)

(iv) The preferred stock of Johnsons Inc. pays an annual dividend of $8.20. What is the price of the preferred stock if the required return is: (6 marks) a) 5% b) 7% c) 12%