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	1.2
Market Price	$45	$30
Intrinsic Value	$63	?

Note: Risk free rate = 4%; expected market return = 14.5%

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

First Three years:	15% per year
Years thereafter:	12% per year

b. Estimate the dividend value of SmileWhite in 2011 using the table above and the two-stage DDM. Dividends per share in 2010 were $1.

c. Estimate the dividend value of SmileWhite in 2012 using the table above and the two-stage DDM. Dividends per share in 2010 were $1.

d. Estimate the dividend value of SmileWhite in 2013 using the table above and the two-stage DDM. Dividends per share in 2010 were $1.

e. Estimate the dividend value of SmileWhite in 2014 using the table above and the two-stage DDM. Dividends per share in 2010 were $1.