The stock of company TYK pays dividends annually, with next year's dividend expected to be $1 a share. For the next seven years, dividends are expected to grow at a rate of 6% a year. Thereafter, dividends are expected to remain constant.
(a) What is the dividend per share in year 7?
(b) Assume the discount rate is 5%. How much would you pay for a share of Company TYK?
(c) Re-calculate your answer to part b, assuming that the payment grows at a rate of 5% for the first seven years, rather than at a rate of 6%.