Janet Ludlow's firm requires all its analysts to use a two$-$stage dividend discount model $($DDM$)$ and the capital asset pricing model

$($CAPM$)$ to value stocks. Using the CAPM and DDM$,$ Ludlow has valued QuickBrush Company at $$63$ per share. She now must value

SmileWhite Corporation.

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

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

First $3$ years

Years thereafter

$12\%$ per year

$9\%$ per year

Estimate the intrinsic value of SmileWhite by using the table above and the two$-$stage DDM$.$ Dividends per share in the most recent

year were $$1\mathrm{.}72.$

c$.$ Recommend QuickBrush or SmileWhite stock for purchase by comparing each company's intrinsic value with its current market price.

d$.$ Describe one strength of the two$-$stage DDM in comparison with the constant$-$growth DDM$.$ Describe one weakness inherent in all

DDMs$.$