As an analyst, you have been tasked to value Altria (NYSE: MO) common stock, currently trading for $37.00 per share. MO has a long history of paying dividends, and paid a dividend of $1.64 per share for the most recent calendar year. To estimate the required return for MO, you have decided to use the Fama-French model. You gather the following data:

Factor

Market Size (SML) Value (HML)

Beta Risk Premium

1.2 6.5% 0.10 1.8% 0.20 4.0%

The risk-free rate is 3.82%.

Altria has a long-standing policy of distributing 80% of its annual earnings as dividends, and the long-term average return on equity for MO is approximately 35%.

1.) Using the Gordon growth model, what is the estimate of intrinsic value per share of MO? (2 points)

2.) Using the Gordon growth model, what is the constant growth rate implied by MOs current share price?