1. A stock paid a dividend of $1 per share in 2019. Dividend will increase by 3% for the next two years and remain the same for the next three years. Thereafter, dividend will grow by 2% each year forever. Assume that the beta of the stock is 1.3, the equity risk premium is 5%, and the market return is 6.5%.

1. Find the risk-free rate
2. All things being equal, do you expect the stock to outperform the market? Why?
3. Estimate equity cost of capital
4. Determine the terminal value
5. What does the terminal value represent?
6. What type of model would you use to determine the value of the stock?
7. Determine the intrinsic value of the stock
8. If the stock is currently trading at $60, what would be your recommendation?