Vc corporation has just paid an annual dividend of 1.40 per share and the stock is selling for $24. During the past year , VC's EPS was 2.90. The firms ROE is 18% and beta is 1.2. The risk free rate is currently 2% and the expected return on the market is 8%.

 

A. Use the  information and determine  the CAPM required rate of return.

 

B.  AnAlyssa. A expects VCs dividends to grow 10% annually for the next two years. After 2 years , she expects dividend growth to decline to a long term rate of 3%. a believes the appropriate required return for this stock is 12%. 

Determine As intrinsic value estimate for VC shares. Based on your analysis should A recommend purchase of this stock?
 

C.  Anaylist b believes the appropriate required return for VC is 18%. 

However, he expects VCs dividends to remain flat for the next 2 years while EPS grows 15% annually during this time. B uses a trailing P/E approach ratio of 15 in 2 years, should he recommend purchase of the stocks?