Determine the price of a share of stock whose last annual dividend payment (D0) was $1.50, assuming a required rate of return of 12% and considering the following:
a) The dividend payment is expected to remain constant (i.e., g = 0) indefinitely.
b) The dividend payment is expected to grow at a constant rate of 3% per year indefinitely.
c) The dividend payment is expected to grow at a rate of 8% for four years and then immediately decline to 3% indefinitely. Calculate your solution twice, the first time using formula 9-5 on page 260, and the second time using the FAME_TwoStageValue user-defined function.
d) The dividend payment is expected to grow at a rate of 8% for four years and then gradually decline over a three year transition period to 3% indefinitely. Calculate your solution twice, first time using formula 9-8 on page 264, and the second time using the FAME_HModelValue user-defined function.
e) Using the same assumptions as in part d, calculate the value of the stock using the FAME_ThreeStageModel user-defined function.
f) How do the calculated intrinsic values compare to the current price of $16? Use an IF statement to display whether the stock is undervalued, overvalued, or fairly valued.
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