Q Company's last dividend was $1.50. Its dividend growth rate is expected to be constant at 3% for 2 years, after which dividends are expected to grow at a rate of 4% forever. Its required retum (3) is 8%. What is the best estimate of the current stock price? Do not round intermediate calculations. a. $38.27 b. $36.90 c. $39.77 d. $35.08 e. $40.99

Year 1 dividend = 1.5 (1 + 3%) = 1.545
Year 2 dividend = 1.545 (1 + 3%) = 1.59135
Year 3 dividend = 1.59135 (1 + 4%) = 1.655
Value in year 2 = Year 4 dividend / required rate - growth rate
Value in year 2 = 1.655 / 0.08 - 0.04
Value in year 2 = 1.655 / 0.04
Value in year 2 = $41.3751
Value of stock = Present value of cash flows
Present value = Future value / (1 + rate)^periods
Value of stock = 1.545 / (1 + 0.08)^1 + 1.59135 / (1 + 0.08)^2 + 41.3751 / (1 + 0.08)^2
Value of stock = $38.27