Storico Co. just paid a dividend of $2.40 per share. The company will increase its dividend by 12 percent next year and will then reduce its dividend growth rate by 4 percentage points per year until it reaches the perpetual growth rate, which reflects a 60% dividend payout ratio and a ROE of -10%. Storico stock has a beta of 1.25 and is priced at $18 today. The market risk premium and risk-free rate are, respectively, 10% and 4%.

(a) Compute the intrinsic value of the stock today, and precisely explain your recommendation on this stock according to the Intrinsic Value Analysis.

(b) Compute the dividend yield and income component of the stock at the END of the transition period (NOT today), assuming that the stock is fairly priced then.