TechSvx earned $5.00 per share and paid a $4.00 dividend per share last year, and is expected to continue to pay out 80% of its earnings as dividends for the foreseeable future. The firm is expected to generate a 14% return on equity in the future, and you require a 15% return on the stock.

a. What should be the value of the stock today (according to the constant growth rate dividend discount model)?

b. What should be the value of the stock one year from today? Is it higher or lower than todays price? Explain why this is the pattern, intuitively.