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Stock valuation

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1. CBC stock is expected to sell for $25 two years from now. Supernormal growth of 5% is expected for the next 2 years. The current dividend is $1.75 and the required return is 14%. What constant growth rate is expected beginning in year 3.

2. A firm's stock has a required return of 12%. The stock's dividend yield is 5%. What dividend did the firm just pay if the current stock price is $50?

3. Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will increase at an 8% rate annually thereafter. Given a required return of 18%, what should the stock sell for today?

4. McIntyre's Moats, Inc. currently pays no dividends, but the firm will begin paying dividends in 3 years. The first dividend will be $3 and dividends are expected to grow at 4% per year thereafter. Given a current market price of $50.50, what is the required return on the stock?

Use the following to answer questions 5 & 6:
52 Weeks

Hi: 48.72
Lo: 20.10
Stock: Duke Energy
Sym: DUK
Div: 1.00
Yld %: 3.3
PE: 18
Vol 100s: 20925
Hi: 31.55
Lo: 29.40
Close: 30.20
Chg.: -0.56

5. Assume the expected growth rate in dividends is 10%. Then the constant growth model suggests that the required return on Duke stock is:

6. You believe that the required return on Duke stock is 16% and that the expected dividend growth rate is 12%, which is expected to remain constant for the foreseeable future. Is the stock currently overvalued, undervalued, or fairly priced?


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