Melissa is trying to value Generic Utility, Inc.s, stock, which is clearly not growing at all. Generic declared and paid a $5 dividend last year. The required rate of return for utility stocks is 11%, but Melissa is unsure about the financial reporting integrity of Generics finance team. She decides to add an extra 1% credibility risk premium to the required return as part of her valuation analysis.

1. What is the value of Generics stock, assuming that the financials are trustworthy?
2. What is the value of Generics stock, assuming that Melissa includes the extra 1% credibility risk premium?
3. What is the difference between the values found in parts a and b, and how might one interpret that difference?