Sally recently graduated with a degree in business and her parents have asked her opinion on one of their investment holdings Enbridge a multinational energy transportation business.

Enbridge's stock price has appreciated 20% over the last two years, and her parents are considering selling it to lock in their profit, however their investment broker believes there is more upsideThe broker estimates that based on the company's historical track record and its current project pipeline , Enbridge should continue to increase its dividend by 5% per year for the next 3 years, and then grow its dividend by at least 2% per year thereafterThe company's current dividend is $2.00 per share

The share price is currently $16.00

If Sally's parents have a target rate of retum on invested capital of 15% should she recommend her parents continue to hold or sell their shares in. EnbridgeAssuming the broker's forecasts are accurate.

Sally recalls the 4- step process from het FIN 2500 class and proceeds to calculate the value of Enbridge shares based on the above information Use the 4-step process below

STEP #1 - Calculate the value of D 1 ,D 2 ,D 3 ,D 4

STEP #2 - Calculate P 4 assuming dividends grow at a constant rate 2% indefinitely

STEP #3 Calculate the present value of P4 assuming a target return on capital of 15% STEP #4 Calculate P 0