Problem #$2$ Stock Valuation using a Dividend Discount Model

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Roadrunner Enterprises is expected to grow its dividends and earnings at various rates. The company just paid a cash dividend of $$2\mathrm{.}00$ per share. The company expects to grow its dividend at $15\%$ for the next four

years, after which the company expects to increase its dividend at a constant rate of $8\%$ per year forever.

If the required rate of return on Roadrunner's common stock is $12\%,$ then what is the Fair Market Value $($FMVo$)$ of the stock now?SHOW WORK! NO WORK $...$ NO POINTS

SHOW ALL WORK!

This problem is similar to the homework problem in Excel posted on the class notes on Canvas.

Please show the expected dividends clearly.

Please show the future stock price clearly.

Please show the Fair Market Value $[$FMVo$]$ of the stock now.

If the stock now trades at $$50\mathrm{.}00$ per share now, is it rich or cheap?