Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend by

20 percent next year and will then reduce its dividend growth rate by 5 percentage points per

year until it reaches the industry average of 5 percent, after which the company will keep a

constant growth rate, forever. If the required return on Warf stock is 13 percent.

Required:

a) what will a share of stock sell for today?

b) What conditions must hold if a stock is to be evaluated using the constant growth model?

c) Why the stock's intrinsic value differs from the stock's current market price? Explain