This year, Shoreline Light and Gas (SL&G) paid its stockholders an annual dividend of $2.00 a share. A major brokerage firm recently put out a report on SL&G predicting that the company's annual dividends should grow at the rate of 10 % per year for each of the next five years and then level off and grow at the rate of 5 % a year hereafter. (Note: Use four decimal places for all numbers in your intermediate calculations.)

a. Use the variable-growth DVM and a required rate of return of 11 % to find the maximum price you should be willing to pay for this stock.

b. Redo the SL&G problem in part a, this time assuming that after year 5, dividends stop growing altogether (for year 6 and beyond,

g equals 0 ). Use all the other information given to find the stock's intrinsic value.

c. Contrast your two answers and comment on your findings. How important is growth to this valuation model?