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On a certain date the following represents the stock price for Universal Business Machines (UBM). 52 Week High $54.05, 52 Week Low $41.73, Dividends paid

On a certain date the following represents the stock price for Universal Business Machines (UBM).

52 Week High $54.05, 52 Week Low $41.73, Dividends paid $0.80, yesterdays closing price $47.25

According to the Value Line Investment, the growth rate in dividends for UBM Corporation is expected to be 18%/year for the next 6 years. Assume that UBM meets this anticipated abnormal dividend growth rate as expected, and then the growth rate falls to 4% per year forever. Assume investors require 14% return on the stock. Is the stock priced correctly? Use the answer obtained from the model discussed in the class to rationalize your discussion. What other factors could affect your answer?

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