2 . Charles Freeman , portfolio manager for Windsor Fund, was considering the purchase of CISCO's common stock . Freeman believed that CISCO's camings can grow at 20 percent per year over the next five years after which the CISCO'S carings multiple will fall to a market multiple . Freeman thinks that the risk involved in CISCO's shares is greater than that for the general market during its high - growth phase and , therefore , the appropriate discount rate to be applied to CISCO's shares should be 3 percentage points greater than the long - run return from the market over the next five years . Using the growth - stock valuation model , answer the following two questions " a ) What is the proper value of CISCO ? Hint : It is possible to obtain the dividend yield of the S&P by dividing payout of the S&P by its PIE. Mathematicallyb ) What growth rate is implied by CISCO's current price ? Additional information at the time of decision :" CISCO's earnings per share ( current year ) $.70 CISCO's dividend payout ratio O . CISCO's market price 21.00 P / E for S&P 500 ( next year's earnings ) 20 ( you can use this for Msap ) Assume the dividend payout for S& P 500 30% Anticipated long - run growth rate for earnings and dividends S& P 500 6/ 2%6 ( 1 -8 )} 1.61 1. 69 1.76 1. 84 1.93 2.01 2.49 3.05 3.71 4. 65 6.19 9.13