1. Janet is planning to purchase the stock of Mortensen Petro, Inc. She expects the stock to pay a $1.98 dividend next year, and she would sell the stock for $28 next year. If the required return of the stock is 12.5%, what is the (highest) price that she is willing to pay for the stock today?
2. With a cost of living increase of 3% per year, what would be the future cost of that investment? Or in other terms, what would be the value of the $25,000 at the time the system has paid for itself?