Business, 21.09.2020 01:01 jenna1680

You've collected the following information from your favorite financial website: 52-Week Price Stock DIV Div YId% PE Ratio Close Price Net Chg
Hi Lo
77.40 10.43 Palm Coal 0.36 2.6 6 13.90 -0.24
55.81 33.42 Lake Lead Grp 1.54 3.8 10 40.43 -0.01
131.00 69.85 SIR 2.35 2.6 10 89.04 3.07
50.24 13.95 DR Dime 0.80 5.2 6 15.43 -0.26
35.00 20.74 Candy Galore 0.32 1.5 28 ?? 0.18

According to your research, the growth rate in dividends for IBM for the next 5 years is expected to be 5 percent. Suppose IBM meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 3.5 percent indefinitely. Assume investors require a return of 10 percent on IBM stock.

Required:
a. According to the dividend growth model, what should the stock price be today? Do not round intermediate calculations. Round your answer to 2 decimal places
b. Based on these assumptions, is the stock currently overvalued, undervalued, or correctly valued?

Answers: 1

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