Joel Williams follows Sonoco Products Company (herein referred to as SON), a manufacturer of paper and plastic packaging for both consumer and industrial use. SON appears to have a dividend policy of recognizing sustainable increases in the level of earnings with increases in dividends, keeping the dividend payout ratio within a range of 40 percent to 60 percent. Williams also notes: SONs most recent quarterly dividend (ex-dividend date: 14 August 2020) was GH0.31, consistent with a current annual dividend of 4 GH0.31 = GH1.24 per year. A forecasted dividend growth rate of 4.0 percent per year, with a beta of 0.95, given an equity risk premium (expected excess return of equities over the risk-free rate, of 4.5 percent and a risk-free rate (RF) of 3 percent. Williams believes the Gordon growth model may be an appropriate model for valuing SON.

Required

a) The famous Dividend Discount Model (DDM) is suitable under three (3) major conditions for valuing firms, state them.

b) Calculate the Gordon growth model value for SON stock.

c) The current market price of SON stock is GH55.00 Using your answer to Question b), show whether SON stock is fairly valued, undervalued, or overvalued.