Question

You’ve collected the following information from your favorite financial website.

52-Week Price		Stock (Div)	Div Yld %	PE Ratio	Close Price	Net Chg
Hi	Lo
77.40	10.43	Palm Coal .36	2.6	6	13.90	–.24
55.81	33.42	Lake Lead Grp 1.54	3.8	10	40.43	–.01
131.07	70.20	SIR 2.70	3.0	10	89.11	3.07
50.24	13.95	DR Dime .80	5.2	6	15.43	–.26
35.00	20.74	Candy Galore .32	1.5	28	??	.18

According to your research, the growth rate in dividends for SIR for the next five years is expected to be 20.5 percent. Suppose SIR meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.5 percent indefinitely. Assume investors require a return of 15 percent on SIR stock.

According to the dividend growth model, what should the stock price be today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Current stock price            $

Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued?

  
(Click to select)Correctly valuedUndervaluedOvervalued

Answer 1

	20.5000%
Cash flows	Year	Discounted CF
-	0	0.00
3.25	1	2.70
3.92	2	2.70
4.72	3	2.70
5.69	4	2.70
6.86	5	2.70
48.25	5	18.99

stock price should be = 32.49

stock is overvalued