1. Chill Out Corporation's next annual dividend is expected to be $1.06 per share. Dividends and earnings have been growing at 6% a year and you expect this growth rate to continue indefinitely. If your required rate of return for this stock is 14%, what is the maximum price you should be willing to pay for it?
2. The Textbook Production Company has been hit hard due to increased competition. The company's analysts predict that earnings (and dividends) will decline at a rate of 5 percent annually forever. Assume that ks = 11 percent and D0 = $2.00. What will be the price of the company's stock three years from now?