BUSI 2151 Corporate Finance 3rd Seminar Question 1 You would like to evaluate the stock of a firm and below are the financial statements of the firm: Financial Statement for the Year Ended December 2019 (Unit: Millions) Assets Liabilities and Equity Cash $1,300 Accounts payable $ 500 Inventories 1,700 Long-term liability 1,800 Net Plant 4,800 Equity 5,500 Total Assets $7,800 $7,800 Sales Cost of goods sold Administrative Exp. Depreciation Operating Profit Interest Expenses Earning Before tax Tax liability Net Income Dividend Paid $2,500 850 600 150 900 200 700 105 $ 595 $ 357 Market Information as of December 2019 Common stock outstanding Market price per share Risk-free rate Expected return on market portfolio Estimate beta 60 million $40 3% 12% 1.50 (a) (b) Calculate the intrinsic value of the stock if its growth rate of dividends is zero. Calculate the intrinsic value of the stock if its growth rate of dividends is constant. (c) Calculate the intrinsic value of the stock if its growth rates of dividends are 10% in Year 1, 9% in Year 2. After Year 2, the dividends grow at a constant rate, as calculated in Part (b), into the indefinite future. Determine whether the stock is a good buy