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Stock valuation

IP Inc is expected to pay $1.70 dividends next year. The dividend growth rate is expected to be 7% forever. If the required rate of return for IP is 10%, calculate the price of the stock using the constant growth model. If the stock is currently selling for $63, indicate whether the stock is under priced or overpriced.

Please show calculations by hand. Also show calculations via Excel if possible as well.

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Solution Preview

Please see the attached for Excel calculation.

Using the constant growth model
Price ...

Solution Summary

The solution explains how to calculate the price of a stock using constant growth model