Stock Valuation (IIIA or IIIB: 10 marks) IIIA. Bonnie's Ice Cream is expecting its ice cream sales to decline due to the increased interest in healthy eating. Thus, the company has announced that it will be reducing its annual dividend by 2 percent a year for the next four years. After that, it will maintain a constant dividend of $2 a share. Last year, the company paid $2.35 per share. What is this stock worth to you if you require a 9.5 percent rate of return? IIIB. Wall Inc. forecasts that it will have the free cash flows (in millions) shown below in the next three years. Assume the firm has zero non- operating assets, $20 million in debt, and 100 million shares. The firm's cost of capital is 14%, and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3. What is the firm's share price? Year 1 2 3 Free cash flow -$20.00 $48.00 $50.50