Part I consists of three questions.

Do the computations for the example below. Show the computations step by step, so Mr. Hillbrandt can easily follow your examples.

1. The companys common stock dividends are anticipated to grow at a constant 5.5% growth rate per year going forward. The company just paid an annual dividend (that is, D-zero) of $3 per share. Whats the intrinsic value of the stock based on the following required rates of return?

1. 6%
2. 8%
3. 10%
4. 12%

2. If the stock is currently selling for $40 per share, is the stock a good buy? Interpret the results and justify your decision.

3. The company just paid an annual dividend of $1.50 per share. Dividends are anticipated to grow at a stable rate of 10% per year forever. The stocks beta is 1.2, the risk-free rate is 4%, and the expected return on the overall stock market is 11%. What is the intrinsic value of the companys common stock?

Part II

Select one company that is a member of the Dow Jones Industrial Average. The listing is here:

http://finance.yahoo.com/q/cp?s=^DJI+Components

Apply the Dividend Discount Model and justify why you think that the stock is currently undervalued, overvalued, or fully valued. Please be sure to state your assumptions and justify your results. What is the relationship, if any, between stockholders wealth and financial decisions?

Computations (use Excel).

Use Excel to make the part I and II computations. Make sure you separate the two parts and organize the information, so Mr. Hillbrandt easily understands.

Memo (use Word).

Explain the concept and computations in part I to the CEO. Start with an introduction and end with a conclusion. Each of the four or five paragraphs should have a heading.

Short Essay - Part II (use Word).

Lets look at this issue from an investors perspective and respond to the question above. Do research as needed and respond to the questions posed in part II.

Start with an introduction and end with a summary or conclusion. Use headings. Dont forget to reference your sources. Maximum length of two pages.