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Stock price for Dynegy Stock

You believe that the required return on Dynegy 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?

a. Overvalued
b. Undervalued
c. Fairly priced
d. Cannot tell without more information

Based on the quote, a good estimate of EPS over the last four quarters is:

a. $0.80
b. $1.21
c. $1.68
d. $1.91
e. $2.54

Etling Inc.'s dividend is expected to grow at 5% for the next 2 years and then at 3% forever. If the current dividend is $2 and the required return is 14%, what is the price of the stock?

a. $19.43
b. $23.82
c. $25.15
d. $27.58
e. $29.70

Suppose the Pale Hose Corp. is expected to pay a dividend next year of $2.25 per share. Both sales and profits for Pale Hose are expected to grow at a rate of 20% for the following 2 years and then at 5% per year thereafter indefinitely. Dividend growth is expected to match sales growth. If the required return is 15%, what is the value of a share of Pale Hose?
a. $22.75
b. $26.00
c. $28.50
d. $32.40
e. $39.25

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Solution Preview

1. Stock Price = D1/(r-g) = D0*(1+g)/(r-g)
=1.00*(1+12%)/(16%-12%) =28
Overvalued

2. EPS = Market price / PE = ...

Solution Summary

Stock price is determined.

$2.19