Answer these questions and show your work:
1. A company's common stock dividends are anticipated to grow at a constant 5.5% growth rate per year going forward. The company just paid an annual dividend (that is, D-zero) of $3 per share. What's the intrinsic value of the stock based on the following required rates of return?
a. 6%
b. 8%
c. 10%
d. 12%
If the stock is currently selling for $40 per share, is the stock a good buy? Interpret the results and justify your decision.
2. A company just paid an annual dividend of $1.50 per share. Dividends are anticipated to grow at a rate of 17% per year for the next five years and then reduce down to a growth rate of 8.5% per year forever. The stock's beta is 1.2; the risk-free rate is 4%, and the expected return on the overall stock market is 11%. What's the intrinsic value of the company's common stock?
Part II
Select one company that is a member of the Dow Jones Industrial Average. The listing is here:
https://finance.yahoo.com/q/cp?s=^DJI+Components
Apply the Dividend Discount Model and justify why you think that the stock is currently undervalued, overvalued, or fully valued. Please be sure to state your assumptions and justify your results. What's the relationship, if any, between stockholders' wealth and financial decisions?