Answer Happy

Assume that you own shares of company "ALPHA". The current price
is € 49.84 per share,
while last week it paid a dividend of € 1.67. Consider whether you
should sell your shares or
increase the number of "ALPHA" shares you hold. Based on the
estimates for future dividends
you will evaluate the following scenarios:
Scenario 1: Dividends will increase over the next three years at a
rate of 30%, 28% and 24%
respectively. After three years, the dividend growth rate is
expected to stabilize at 8% per year.
Scenario 2: The annual dividend will remain constant (€ 1.67) for
all years.
The return you require for shares in this risk category is 14%.
Consider the following:
i. If scenario 1 applies, estimate the value of the "ALPHA" share
today. What should be
your investment decision regarding "ALPHA" shares? Justify your
answer.
ii. If the 2nd scenario applies, estimate the value of the "ALPHA"
share today. What
should be your investment decision regarding "ALPHA" shares?
Justify your answer.
iii. Using the forecasts of the 1st scenario calculate the share
price of "ALPHA" in the 2nd
year (P2).