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Valuation Problem

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Use DDM, CAPM, and or the Constant Growth - Two Stage Model to solve valuation for the stocks.

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Solution Summary

This solution shows how to conduct a stock valuation.

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First, we need to pick a model. CAPM obviously does not apply, because stock beta are not given. The two stage model is a variation of DDM, and we use that only if the future growth rate is not constant (for example, from year 1 to year 10, growth rate is 10%, after that growth rate is 5%). In this case, the future growth rate is constant, so the two-stage model is ...

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