This year, Shoreline Light and Gas(SL&G) paid its stockholders an annual dividend of $1.00 a share. A major brokerage firm recently put out a report onSL&G predicting that thecompany's annual dividends should grow at the rate of 11% per year for each of the next five years and then level off and grow at the rate of 5% a year there after.(Note:Use four decimal places for all numbers in your intermediatecalculations.)

a. Use thevariable-growth DVM and a required rate of return of 10% to find the maximum price you should be willing to pay for this stock.

b. Redo theSL&G problem in part a,this time assuming that after year5, dividends stop growing altogether(for year 6 andbeyond,g equals 0g=0). Use all the other information given to find thestock's intrinsic value.

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