You are thinking about buying some stock in Vandy Vids, a retro VHS video store. You can only find information on their dividends so you decide to use these to price the stock, with the understanding that the dividends will pay forever. a. What would the stock price be if Vandy Vids currently pays a $2.40 dividend annually (paid one year from today) with a 16% discount rate? b. The firm's management wants to increase their stock price and they have two alternatives. They can introduce a 1% annual growth rate to their dividend amount or they can split the annual dividend into 12 equal payments and pay it monthly. Note the growth would be applied to the dividend in year t+2, not the initial dividend payment.

What would you recommend the firm to do if the goal is to increase the stock price?