1. Homer Enterprise is expected to pay a $3.50 dividend one year from now (D1 = 3.50), and thereafter its dividend is expected to grow at 10% per year forever. If the required rate of return on its stock is 16%, what is the stock's intrinsic value?
2. Common stock of Maggie's Binkies Corporation is currently selling at $40 per share. The stock is expected to pay a dividend of $2.00 per share at the end of the year (D1 = $2.00), and the dividend is expected to grow at a constant rate of 6% per year. What is the required rate of return?