1. Roller Inc. has just paid an annual dividend of $0.62. Analysts expect dividends to grow by 8% per year for the next 6 years, and then by 2.5% per year thereafter. The company has a required return of 12%.

What is the value of the stock now?

2. A stock just paid an annual dividend of $1.7. The dividend is expected to grow by 8% per year for the next 3 years. The growth rate of dividends will then fall steadily (linearly) from 8% after 3 years to 5% in year 6.

The required rate of return is 12%.

a. What is the value of the stock if the dividend growth rate will stay 0.05 (5%) forever after 6 years?

b. In 6 years, the P/E ratio is expected to be 23 and the payout ratio to be 80%. What is the value of the stock when using the P/E ratio?