You've collected the following Information from your favorite financial website. 52-Week Price Div PE Close Net HI Lo Stock (DIV) Yld % Ratio Price Chg 77.40 10.43 Palm Coal 0.36 2.6 6 13.90 -0.24 Lake Lead Grp 55.81 33.42 3.8 10 40.43 -0.01 1.54 131.10 70.35 SIR 2.85 3.2 10 89.14 3.07 50.24 13.95 DR Dime 0.80 5.2 6 15.43 -0.26 Candy Galore 35.00 20.74 1.5 28 ?? 0.18 0.32 According to your research, the growth rate in dividends for SIR for the next five years is expected to be 20 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.25 percent Indefinitely. Assume Investors require a return of 13 percent on SIR stock. (Hint: the number after the company's name above is DO.) 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? Overvalued
You've collected the following Information from your favorite financial website. 52-Week Price Div PE Close Net HI Lo Stock (DIV) Yld % Ratio Price Chg 77.40 10.43 Palm Coal 0.36 2.6 6 13.90 -0.24 Lake Lead Grp 55.81 33.42 3.8 10 40.43 -0.01 1.54 131.10 70.35 SIR 2.85 3.2 10 89.14 3.07 50.24 13.95 DR Dime 0.80 5.2 6 15.43 -0.26 Candy Galore 35.00 20.74 1.5 28 ?? 0.18 0.32 According to your research, the growth rate in dividends for SIR for the next five years is expected to be 20 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.25 percent Indefinitely. Assume Investors require a return of 13 percent on SIR stock. (Hint: the number after the company's name above is DO.) 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? Overvalued
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
According to the dividend growth model, what should the stock price be today
Transcribed Image Text:You've collected the following Information from your favorite financial website.
52-Week Price
Div
PE
Close
Net
HI
Lo
Stock (DIV)
Yld % Ratio
Price
Chg
77.40
10.43
Palm Coal 0.36
2.6
6
13.90
-0.24
Lake Lead Grp
55.81
33.42
3.8
10
40.43
-0.01
1.54
131.10
70.35
SIR 2.85
3.2
10
89.14
3.07
50.24
13.95
DR Dime 0.80
5.2
6
15.43
-0.26
Candy Galore
35.00
20.74
1.5
28
??
0.18
0.32
According to your research, the growth rate in dividends for SIR for the next five years is
expected to be 20 percent. Suppose SIR meets this growth rate in dividends for the next
five years and then the dividend growth rate falls to 5.25 percent Indefinitely. Assume
Investors require a return of 13 percent on SIR stock. (Hint: the number after the
company's name above is DO.)
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?
Overvalued
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