This year, Shoreline Light and Gas (SLG) paid its stockholders an annual dividend of $ 2.00 a share.

This​ year, Shoreline Light and Gas​ (SL&G) paid its stockholders an annual dividend of ​$2.00 a share. A major brokerage firm recently put out a report on​ SL&G predicting that the​ company’s annual dividends should grow at the rate of 10 ​% per year for each of the next five years and then level off and grow at the rate of 5 ​% a year hereafter. ​(Note​: Use four decimal places for all numbers in your intermediate​ calculations.)

a. Use the​ variable-growth DVM and a required rate of return of 11 ​% to find the maximum price you should be willing to pay for this stock.

b. Redo the​ SL&G problem in part ​a, this time assuming that after year​ 5, dividends stop growing altogether​ (for year 6 and​ beyond,

​). Use all the other information given to find the​ stock’s intrinsic value.

c. Contrast your two answers and comment on your findings. How important is growth to this valuation​ model?

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