Janet Ludlows firm requires all its analysts to use a two-stage DDM and the CAPM to value stocks. Using these measures, Ludlow has valued QuickBrush Company at $63 per share. She now must value SmileWhite Corporation.

a. Calculate the required rate of return for SmileWhite using the information in the following table:

December 2010

	Quick Brush	SmileWhite
Beta	1.35	1.25
Market Price	$45.00	$28
Intrinsic Value	$63.00	?

Note: Risk-free rate = 4%; expected market return = 13.5%.

Instruction: enter your answer as a percentage rounded to 1 decimal place.

Required rate of return %

b. Ludlow estimates the following EPS and dividend growth rate for SmileWhite:

First three years:	14% per year
Years thereafter:	12% per year

Estimate the intrinsic value of SmileWhite in December 2010 using the table above and the two-stage DDM. Dividends per share in 2010 were $1.

Instruction: enter your answer as a decimal number rounded to 2 decimal places.

Year Dividends

2010 $1.00

2011 $

2012 $

2013 $

2014 $

Intrinsic stock value in 2013: $.

Intrinsic stock value in 2010: $.