Use the information below for Question 5-6

Consider a firm that is not currently paying any dividends (perhaps because it has been reinvesting earnings into internal projects). The firms management is deciding between two plans for the future:

Plan (i). Continue to pay no dividends for the next 5 years and continue reinvesting earnings into growing the company. Six years from today, pay a first annual dividend expected to be $0.50 per share. From year six onwards, dividends are expected to growth at a rate of 3% per year (forever). Under this plan, investors expected rate of return over the first five years will be 9% and subsequently will be a constant 7% (forever).

Plan (ii). Pay a $0.10 dividend today, and grow that dividend at 20% per year for the following five years (note that there are six annual dividends paid including the one made today). Starting in the sixth year, slow down the expected dividend growth rate to 3% . Under this plan, investors expected rate of return over the first five years will be 9%, and subsequently will be a constant 7%.

5) What would be the stocks intrinsic value today if the company implements Plan (i)? (Round to the nearest cent)

6) What would be the stocks intrinsic value today if the company implements Plan (ii)? (Round to the nearest cent; Do not need to include the dividend payment today, i.e. $0.10, in the stock value)