1. (10 points) Answer two questions on Stock C using the following information.

The current stock price (P₀): $80 per share

The average growth rate of the dividend during the past ten years: 12% per year

The required return on the stock: 8% per year

The companys return on equity is 20% and they return 70% of the earnings while paying out the remainder as dividends.

The estimated earnings for the next year (E₁) is $4 per share. The estimated earings per share for the following two years are: E₂ = $4.2 and E₃ = $4.6.

1. What kind of valuation model you can use to value Stock C? Do you need to make any assumption to value this stock based on the given information? Explain. (Hint: Use one of the four models you learned in the Bloomberg Equity Valuation cases of GE and Disney.)

Answer:

2. Estimate the intrinsic value of the stock and show your calculations.

Answer: Intrinsic value = $______________ per share

Show your calcuations here to earn full credit.