The common stock of Golf Resorts has recently paid shareholders a $0.45 dividend per share and is currently trading at $17.36 each. Investors anticipate earnings and dividends of the company to grow at a constant rate of 5% per annum for the foreseeable future.

Required:

a) According to the dividend discount model, what is the implied required rate of return for Golf Resorts shareholders?

b) If investors now expect the $0.45 current dividend will grow at an annual rate of 8% per year for the following 2 years, then 5% in the subsequent year, and then 2% per year thereafter, what is the maximum price investors would be willing to pay for this stock today? Assume investors require a 9% rate of return.

c) Explain in detail two limitations of the dividend discount model.