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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.

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

$2.19