USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMS

Ridgemont Can Company's last dividend was $1.55 and the directors expect to maintain the historic 5 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 8 percent for the next three years and the stock will then reach $22.50 per share.

(b) 16 How much should you be willing to pay for the stock if you require a 15 percent return? a) $16.97 b) $18.90 c) $21.32 d) $32.63 e) None of the above

(d) 17 How much should you be willing to pay for the stock if you feel that the 8 percent growth rate can be maintained indefinitely and you require a 15 percent return? a) $18.90 b) $19.28 c) $22.14 d) $23.91 e) $25.46

The answer of 16 is B, for 17 is D, but why?