You wish to determine the value of Starbucks' common stock (ticker symbol

SBUX) using the dividend discount model approach. You collect the following

data:

SBUX's current annual dividend $1.44/share

SBUX's beta to the broad market .65

Market risk premium for US stocks 7.7%

Risk free rate 1.8%

You further determine SBUX's dividend growth rate for the past five years has been

11.4% per annum and you expect that growth rate to continue for the coming year.

However, you expect that growth rate to fall to 8% p.a. in years 2 and 3 before

settling at 5% p.a. thereafter.

(i) What is your estimated per share value of SBUX?

(ii) Assuming SBUX was currently trading at $75/share, and leaving your growth

rate assumptions for years 1 through 3 unchanged, what approximate terminal

growth rate assumption would be required to have your DDM model produce

this price?