You've collected the following information from your favorite financial website. 52-Week Price Hi 77.40 55.81 131.08 50.24 35.00 Lo 10.43 33.42 70.25 13.95 20.74 Stock (Div) Palm Coal 0.36 Lake Lead Grp Overvalued 1.54 SIR 2.75 DR Dime 0.80 Candy Galore V 0.32 Div Yld % 2.6 3.8 3.1 5.2 1.5 PE Ratio 6 10 10 6 28 Close Price 13.90 40.43 89.12 15.43 ?? According to your research, the growth rate in dividends for SIR for the next five years is expected to be 21 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.75 percent indefinitely. Assume investors require a return of 15 percent on SIR stock. Net Chg -0.24 -0.01 3.07 -0.26 0.18 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?
You've collected the following information from your favorite financial website. 52-Week Price Hi 77.40 55.81 131.08 50.24 35.00 Lo 10.43 33.42 70.25 13.95 20.74 Stock (Div) Palm Coal 0.36 Lake Lead Grp Overvalued 1.54 SIR 2.75 DR Dime 0.80 Candy Galore V 0.32 Div Yld % 2.6 3.8 3.1 5.2 1.5 PE Ratio 6 10 10 6 28 Close Price 13.90 40.43 89.12 15.43 ?? According to your research, the growth rate in dividends for SIR for the next five years is expected to be 21 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.75 percent indefinitely. Assume investors require a return of 15 percent on SIR stock. Net Chg -0.24 -0.01 3.07 -0.26 0.18 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?
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
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Question
Transcribed Image Text:You've collected the following information from your favorite financial website.
52-Week Price
Hi
77.40
55.81
131.08
50.24
35.00
Lo
10.43
33.42
70.25
13.95
20.74
Stock (Div)
Palm Coal 0.36
Lake Lead Grp
Overvalued
1.54
SIR 2.75
DR Dime 0.80
Candy Galore
0.32
Div
PE
Yld % Ratio
2.6
6
10
10
6
28
3.8
3.1
5.2
1.5
Close
Net
Price
Chg
13.90
-0.24
40.43 -0.01
89.12
15.43
??
3.07
-0.26
0.18
According to your research, the growth rate in dividends for SIR for the next five years is
expected to be 21 percent. Suppose SIR meets this growth rate in dividends for the next
five years and then the dividend growth rate falls to 5.75 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?
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