Assume the latest EPS was $2, going up by 18% each year for the following five years. Thereafter, the growth rate is constant at the annual growth rate of GDP of 4%. The discount rate is 10%.

Part 1. The PV of EPS of the year five is

a. $1.20

b. $3.20

c. $4.20

d. $5.20

e. None of the above (my answer is ..)

Part 2. The price as of the year five (P5) is $

Part 3. The price as of today (P0) is $

Part 4. Assume your computed price in question no. 6 is $10 per share and the stock is trading at $11 per share. With a margin of error of 20%, the upper limit of the fair value of this stock is $ and the lower limit is $ .. Therefore, your recommendation should be:

a. Buy

b. Sell

c. No action