SND operates in the energy sector. Assume that during the past three years (2014, 2015, and 2016), SND generated the following total dividends to its common equity shareholders (amounts are in millions).

Year 2014	2015	2016
Common dividend payments	679	750	793
Stock repurchases	671	366	298
Total	1,350	1,116	1,091

Assuming 5% growth in earnings and 5% concurrent growth in dividends for next five years, the following table presents the projected total dividends to the common equity shareholders (amounts are in millions).

Year + 1 Year + 2 Year + 3 Year + 4 Year + 5 Year + 6

Projected growth 5% 5% 5% 5% 5% 3%

Projected dividends to common equity $1,146 $1,203 $1,263 $1,326 $1,392 $1,434

In Year+6 and beyond, the total dividends (as well as income statement and balance sheet) are expected to grow at long-term rate of 3%. Dividends for Year+6 are already calculated in the above table.

Following are the additional assumptions at the start of Year + 1:

SNDs market beta is 0.8.

Risk free rate is 3.0%

Markets risk premium is 6.0%

Number SND shares are 400 million

Share price : $28.56

With the Answers for a thru d provided below - Please answer the questions E & F BELOW.

a. Calculate the required rate of return on equity as of beginning Year + 1 - ANSWER BELOW

a	required rate of return
	beta		B	0.8
	Risk free rate		Rf	3%
	Risk premium		Rm-Rf	6%
	using capm
	=	Rf+	B(Rm-Rf)
	=	3+	0.8(6)
	=	3+	4.8
	=	7.8

b. Calculate the sum of the present value of total dividends for 5 years (Year+1 through Year+5). - ANSWER BELOW

b	sum of present value of dividends from year 1 to 5
			a	b	a/b
				factor for
		Year	Dividends	7.80%
		1	1146	1.0780	1063.08
		2	1203	1.1621	1035.209
		3	1263	1.2527	1008.201
		4	1326	1.3504	981.9028
		5	1392	1.4558	956.1927
		total present value			5044.585

c. Calculate the continuing value at the start of year + 6 using the perpetuity-with-growth model

using the year+6 dividends provided in the above table. Calculate the present value of

continuing value as of the start of Year + 1. ANSWER BELOW

c
	continuing value at the end of year 5
	formula	=		D1
				ke-g
	ke			7.8
	g			3
	dividend of 6 year			1434
				0.078-0.03
			a	1434
			b	0.048
	terminal value		a/b	29875
	continuing value as at the start of year 1 or today
	discount the terminal value by required rate of return
			=	29875
				(1.078)^5
	=			29875
				1.455773
	=			20521.74	equation 2

d. Compute the total present value as of start of Year + 1. Apply the adjustment for midyear

discounting. ANSWER BELOW

d	the total present value including terminal value and dividends
	add equation 1+ 2			25566.32

e. Compute the value per share as of beginning of Year+1

f. Do you think the share price of SND is overpriced, underpriced, or correctly priced at the start of

Year + 1?