Helen Morgan, CFA, has been asked to use the DDM to determine the value of Sundanci, Inc. Morgan anticipates that Sundanci's earnings and dividends will grow at 32% for 2 years and 13% thereafter. Calculate the current value of a share of Sundanci stock by using a two-stage dividend discount model and the data from Tables 18A and 18B.

Table 18A

Table 18B
Required rate of return on equity ..............14%
Growth rate of industry .........................13%
Industry P/E ratio .................................26

Transcribed Image Text:

Income Statement Revenue Depreciation Other operating costs Income before taxes Taxes Net income Dividends Earnings per share Dividend per share Common shares outstanding (millions) Balance Sheet Current assets Net property, plant and equipment 2010 2011 $474 20 368 86 26 S 598 23 Aeit 115 35 18 $0.714 $0.214 84.0 24 $0.952 $0.286 84.0 2010 2011 201 474 675 57 S326 사U3 815 141 Total assets Current liabilities Long-term debt Total liabilities 57 618 675 34 141 674 815 38 Shareholders' equity Total liabilities and equity Capital expenditures