Q1: Sam Inc.

Sam Inc., is a rapidly growing manufacturing company involved in selling personal computers (PCs), servers, data storage devices, network switches, and software. The most recent annual (2018) dividend payment of Sam was $2.50 per share. The firms financial manager expects that these dividends will increase at 8% annual rate over the next three initial growth periods (IGP). At the end of three years (IGP), the firms is expected to result in a slowing of the dividend growth rate to 4% per year for the foreseeable future. Assume that the appropriate discount rate is 10%

Required:

1. Discuss three set of actions when the securities are undervalued, overvalued and correctly priced.
2. Estimate the value of Sams shares using variable (two-stage) growth model.
3. State clearly any limitations and assumptions that you made in your calculations.