Thisyear, Midland Light and Gas(ML&G) paid its stockholders an annual dividend of $3.00 a share. A major brokerage firm recently put out a report onML&G predicting that thecompany's annual dividends should grow at the rate of 7% per year for each of the next seven years and then level off and grow at the rate of 3% a year thereafter. (Note: Use four decimal places for all numbers in your intermediatecalculations.)

a. Use thevariable-growth DVM and a required rate of return of 8.00% to find the maximum price you should be willing to pay for this stock.

b. Redo theML&G problem in part a, this time assuming that after year7, dividends stop growing altogether(for year 8 andbeyond, g=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?