Response to the following problem:
Assume you've generated the following information about the shares of Bufford's Burger Barns: the company's latest dividends of $4 a share are expected to grow to $4.32 next year, to $4.67 the year after that and to $5.04 in year 3. In addition, the price of the shares is expected to rise from $56.50 (its current price) to $77.75 in three years.
a. Use the dividends-and-earnings model and a required return of 15% to find the value of the shares.
b. Use the IRR procedure to find the share's expected return.
c. Given that dividends are expected to grow indefinitely at 8%, use a 15% required rate of return and the dividend valuation model to find the value of the share.
d. Assume dividends in year 3 actually amount to $5.04, the dividend growth rate stays at 8%, and the required rate of return stays at 15%. Use the dividend valuation model to find the price of the share at the end of year 3.