1. A company's common stock dividends are anticipated to grow at a constant 5.5% growth rate per year going forward. The company just paid an annual dividend (that is, D-zero) of $3 per share. What's the intrinsic value of the stock based on the following required rates of return?
a.6%
b.8%
c.10%
d.12%
If the stock is currently selling for $40 per share, is the stock a good buy? Interpret the results and justify your decision.
2. A company just paid an annual dividend of $1.50 per share. Dividends are anticipated to grow at a rate of 17% per year for the next five years and then reduce down to a growth rate of 8.5% per year forever. The stock's beta is 1.2; the risk-free rate is 4%, and the expected return on the overall stock market is 11%. What's the intrinsic value of the company's common stock?