Question
DAA's stock is selling for $15 per share. The firm's income, assets, and stock price have been growing at an annual 15 percent rate and
DAA's stock is selling for $15 per share. The firm's income, assets, and stock price have been growing at an annual 15 percent rate and are expected to continue to grow at this rate for 3 more years. No dividends have been declared as yet, but the firm intends to declare a dividend of D3 = $2.00 at the end of the last year of its fast growth. After that, dividends are expected to grow at a constant growth rate of 6 percent. The firm's required rate of return is 18 percent. Is the stock overpriced or underpriced? By how much?
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