Question: 1. Eclipse Mints stock is expected to pay a dividend of $0.50 next year, $0.70 in the following year, $1.30 per year from year 3

1. Eclipse Mints stock is expected to pay a dividend of $0.50 next year, $0.70 in the following year, $1.30 per year from year 3 to year 6, and $1.80 each year thereafter. Eclipse Mints is 25% riskier than the market as a whole. Return on market is 11% and the risk-free rate is 4%. If the current price of Eclipse is $12, would you buy this stock? The expected return of eclipse? Present value of perpetuity in year 7? Choose Present value of perpetuity in year 0? Choose the Present value of the annuity in year 3? Choose the Present value of the annuity in year 0? Present value of year 1? Present value of year 2? Price of Eclipse? Comment on your decision.

Eclipse has earnings of $8 per share with a payout ratio of 25%. Dividend is expected to grow at a rate of 8% per year for next 3 years, followed by a growth rate of 4% thereafter. Investor expects a required rate of 12% from Eclipse. If the market price is $25 should the investor buy Eclipse? Comment on your decision.

What is the current dividend of Eclipse?

Calculate the present value of all dividends.

Calculate intrinsic value of Eclipse.

If the market price is $25 should the investor buy Eclipse? Comment on your decision.

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