Simtek currently pays a $2.5 dividend (D0) per share. Next year’s dividend is expected to be $3.25 per share. After next year, dividends are expected to increase at a 10 percent annual rate for 3 years and a 6 percent annual rate thereafter. Use Table II to answer the questions. Do not round intermediate calculations. Round your answers to the nearest cent.
What is the current value of a share of Simtek stock to an investor who requires a 14 percent return on his or her investment?
$
If the dividend in year 1 is expected to be $3.25 and the growth rate over the following 3 years is expected to be only 7 percent and then 6 percent thereafter, what will the new stock price be?
$