1. A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock prices, in each of the past 6 years are shown in the following table: Year Dividends Year end Stock Price 2020 $4.60 47.5 2019 4.20 45.6 2018 3.80 43.4 2017 3.40 44.1 2016 3.10 39.1 2015 2.85 30.1 To help you analyze better, additional information is also collected which are as follows: • Current Yields on 3-month U.S. Treasuries is 3.59% • Return on market portfolio is estimated around 8% • Beta coefficient is estimated to be 1.25 The dividends are expected to grow at a constant rate. Is this stock overvalued or undervalued? Support your answer with relevant calculations and arguments.

1. A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock prices, in each of the past 6 years are shown in the following table: Year Dividends Year end Stock Price 2020 $4.60 47.5 2019 4.20 45.6 2018 3.80 43.4 2017 3.40 44.1 2016 3.10 39.1 2015 2.85 30.1 To help you analyze better, additional information is also collected which are as follows: • Current Yields on 3-month U.S. Treasuries is 3.59% • Return on market portfolio is estimated around 8% • Beta coefficient is estimated to be 1.25 The dividends are expected to grow at a constant rate. Is this stock overvalued or undervalued? Support your answer with relevant calculations and arguments.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 6P

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