Suppose Acap Corporation will pay a dividend of$2.77

per share at the end of this year and$2.99

per share next year. You expect Acap's stock price to be$51.17

in two years. Assume that Acap's equity cost of capital is10.1%.

a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year?

c. Given your answer in

(b),

what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in

(a)?

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Aaron Inc. has 323 million shares outstanding. It expects earnings at the end of the year to be$ 650 million. The firm's equity cost of capital is 12%. Aaron pays out 50% of its earnings in total: 30% paid out as dividends and 20% used to repurchase shares. If Aaron's earnings are expected to grow at a constant 77% per year, what is Aaron's share price?

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Assume Gillette Corporation will pay an annual dividend of $ 0.68 one year from now. Analysts expect this dividend to grow at 11.9 % per year thereafter until the 44th year. Thereafter, growth will level off at 1.5 % per year. According to thedividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 7.7%?