Question: Current forecasts for Blues Limited is to pay dividends over the next four years, as follows: Year 1 2 3 4 Dividends $1.20 $1.36 $1.52

  1. Current forecasts for Blues Limited is to pay dividends over the next four years, as follows:

Year

1

2

3

4

Dividends

$1.20

$1.36

$1.52

$1.63

At the end of four years you anticipate selling the stock at a market price of $16.47.

Required:

a) Using the dividend valuation model, compute the current price of the stock given a 15% discount rate.

b) Suppose that Blues Limited shares is currently trading at $11.50 would you buy the stock? Provide your reasoning.

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