The DDM Corporation has just paid a cash dividend (D0) of $2 per share. It has consistently increased its cash dividends in the past by 5% per year, and you expect it to continue to do so. You estimate that the market capitalization rate for this stock should be 13% per year.

i) What is your estimate of the intrinsic value of a share (derived using the DDM model)?

ii) Suppose that the actual price of a share is $20. By how much would you have to adjust each of the following model parameters to justify this observed price:

The growth rate of dividends

The market capitalization rate