Question
Cisco's common shares were trading on the Toronto Stock Exchange at the end of 2022 at $22.15 per share. The company had just distributed to
Cisco's common shares were trading on the Toronto Stock Exchange at the end of 2022 at $22.15 per share. The company had just distributed to its common shareholders an annual dividend of $2.00 per share. Stock analysts predict the following growth rates for dividends at the end of the next four years:
Year Growth rate
2023 7%
2024 5%
2025 4%
2026 3%
Thereafter, the annual dividend would increase by 2.5% per year and indefinitely. Based on an investor-required return of 15%, was Cisco stock overvalued or undervalued by the market?
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