This year, Mero Nepal Company paid its stockholders as annual dividend of Rs. 30 a share. A major brokerage firm recently put out a report stating…

This year, Mero Nepal Company paid its stockholders as annual dividend of Rs. 30 a share. A major brokerage firm recently put out a report stating that in its opinion, the company's annual dividends should grow at the rate of 10 percent per year for each of the next 3 years and then level off and grows at the rate of 6 percent a year thereafter. According to consensus estimate provided by analysts the stock beta is 1.4 percent, risk-free rate is 5 percent and market return is 14 percent.

a. What is the required rate of return on this stock?

b. What is the maximum price you should be willing to pay for this stock?

c. Define dividend yield and capital gain yield. What is the dividend yield and capital gain yield in year 4?

d. Now assume that after year 3, dividends stop growing altogether. What is the stock's intrinsic value?