Question

You’ve collected the following information from your favorite financial website.

52-Week Price		Stock (Div)	Div Yld %	PE Ratio	Close Price	Net Chg
Hi	Lo
77.40	10.43	Palm Coal 0.36	2.6	6	13.90	–0.24
55.81	33.42	Lake Lead Grp 1.54	3.8	10	40.43	–0.01
131.03	70.00	SIR 2.50	2.8	10	89.07	3.07
50.24	13.95	DR Dime 0.80	5.2	6	15.43	–0.26
35.00	20.74	Candy Galore 0.32	1.5	28	??	0.18

According to your research, the growth rate in dividends for SIR for the next five years is expected to be 20.5 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.5 percent indefinitely. Assume investors require a return of 15 percent on SIR stock.

Requirement 1:

According to the dividend growth model, what should the stock price be today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Current stock price

$

Requirement 2:

Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued?

(Click to select)  Undervalued  Correctly valued  Overvalued

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

01:44 C w ENG 99+ 31-07-2020 28 Х EA52 . DU DV DW DX DY DZ EA EB EC ED EE EF EC- 30 31 DO D1 32 33 34 D2 D3 2.5 3.0125 (2.5*(1+0.205)] 3.6301 (3.0125*(1+0.205)] 4.3742 AND SO ON 5.2709 6.3515 6.7008 [6.7008*(1+0.055)] 35 D4 36 D5 37 D6 P5 = 38 39 40 41 D6/(ke-g) 6.7008/(0.15-0.055) = 70.53 42 YEAR DIVIDENDS +P5 PV OF (DIVIDENDS +P5) 43 44 3.0125 PV FACTOR AT 15% 0.8696 0.7561 0.6575 0.5718 1 D1 2 D2 3 D3 45 46 3.6301 2.62 2.74 2.88 3.01 4.3742 4 D4 5.2709 47 48 5 D5 + P5 0.4972 38.23 76.8864 PO = 49.48 49 REQUIREMENT 1 50 51 REQUIREMENT 2 52 53 CLOSING PRICE = 89.07 STOCK IS OVERVALUED EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB PS ROPI APV ROSS price quote LEVEREG BUY EVA MVA SWAP distre ... + .