Eclipse has earnings of $8 per share with a payout ratio of 25%. Dividend is expected to grow at a rate of 8% per year for next 3 years, followed by a growth rate of 4% thereafter. Investor expects a required rate of 12% from Eclipse. If the market price is $25 should the investor buy Eclipse? Comment on your decision.

What is the current dividend of Eclipse?

Calculate the present value of all dividends.

Calculate intrinsic value of Eclipse.

If the market price is $25 should the investor buy Eclipse? Comment on your decision.