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On a certain date, the following represents the stock price for R2D2 Corporation. 52 Week High $65.50, 52 Week Low $37.75, Dividends paid just yesterday

On a certain date, the following represents the stock price for R2D2 Corporation. 52 Week High $65.50, 52 Week Low $37.75, Dividends paid just yesterday $3.20, yesterdays closing price $48.00

According to the Value Line Investment Report, the growth rate in dividends for R2D2 is expected to be abnormally high at 20% per year for the next 7 years, followed by sustained growth of 5 percent per year forever.

Suppose that R2D2 meets this anticipated dividend growth as cited above, and an investor wants 15% return on the stock, Is the stock priced correctly as of yesterdays close?

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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