ABC Corp:

1) ABC Corp. has just paid an annual dividend of $0.3. ABC has a required return of 12%.

1A) If dividends are expected to be constant, what is the intrinsic value (fair price) of ABC stock?

1B)You now think that dividends will grow by 4% from year to year. What is the intrinsic value of ABC stock?

2) ABC Corp. has an ROE of 7% and reinvests 30% of its net income. ABC has just paid an annual dividend of $0.31 and dividends are expected to grow annually by 0.3%. ABC stock has a beta of 0.6. The risk-free rate is 2% and the expected return on the market portfolio is 8%.

2A) What is the appropriate discount rate?

2B) What is the intrinsic value (fair price) of ABC stock?