Growth-stock valuation model: how to value CISCO & what growth rate is implied by CISCO's current price??

2 . Charles Freeman , portfolio manager for Windsor Fund , was considering the purchase of CISCO's common stock . Freeman believed that CISCO's earnings can grow at 20 percent per year over the next five years after which the CISCO'S earnings multiple will fall to a market multiple . Freeman thinks that the risk involved in CISCO's shares is greater than that for the general market during its* high - growth phase and , therefore , the appropriate discount rate to be applied to CISCO's shares should be 3 percentage points greater than the long - run return* from the market over the next five years . Using the growth- stock valuation model , answer the following two questions : a ) What is the proper value of CISCO ? Hint : It is possible to obtain the dividend yield of the S&P by dividing payout of the S&P by its P / E . D Mathematically* D . Eb ) What growth rate is implied by CISCO's current price ?' Additional information at the time of decision :" CISCO's earnings per share ( current year ) $. 70 CISCO's dividend payout ratio O CISCO's market price* 21. 00 P / E for S&P 500 ( next year's earnings ) 20 ( you can use this for MS&P ) Assume the dividend payout for S&P 500 30%/0 Anticipated long - run growth rate for earnings and dividends S&P 500 6 1/2 %/0 ( 1 + 8 ) s 1. 61 1. 69 1. 76 1. 84 1.93 2. 01 2.49 3.05 3.71 4. 65 6.19 9.13