security analysis

part2

The dividend (DIV) growth per share of CBS, Inc. is expected to be 10% per year for the next two years, followed by a growth rate of 5% per year for the next three years; after this five-year period, the growth in per share DIV is expected to be 2% per year indefinitely. The required rate of return on CBS, Inc. is 12%. Last year's per share DIV, that is, DIV at time 0(Da), was $2.00 per share. a) Calculate the dividend values for years 0 through 6 . Show your work. D1 = D2= D3 = D4 = D5 = D6= b) At the end of year 5 , calculate the terminal price PI. (Show your calculations). c) What should the stock sell for today, that is, what is the intrinsic value of the stock at time 0,P, ? (Show your calculations) d) You consider any security trading within a band of 15% of your estimate of intrinsic value to be within a "fair value range." If the current stock market price is $16 a share, is CBS over(under)valued? e) Based on your answer in (d), recommend the profitable trading strategy, that is, to go long, short, or stay neutral