1. STB shares currently pay a dividend of $5. This dividend is expected to grow at an annual rate of 15% for the next two years. The dividend is expected to decrease by $2 in year 3 and to grow at a constant annual rate of 7% thereafter. If you require a 20% rate of return on an investment such as this, how much would you be willing to pay per share.
2. What price would you anticipate the share selling for at the beginning of year 3.
3. If you anticipate selling the share at the beginning of year 2, how much would you pay for it today.