Stock Valuation (25 Total points)

Cao, Feige & Smit, Inc.

Cao, Feige & Smit (CFS) is a nationwide and international candied treats chain headquartered in Tronchin, IL.

CFS is privately owned by the Wright sisters, Loli and Gibble, who are considering an initial public offering (IPO) of the company's common stock.They have approached the investment banking firm of Harris, Colton & Harshal (HCH) about assisting with the IPO.An account representative from HCH has approached the Hu, Volk & Zach Pension Plan (HVZPP) about investing in the soon-to-be issued CFS stock that is expected to become listed on the New York Stock Exchange (NYSE) soon after the IPO.

The date is now mid-December of 2020.The IPO will take place on February 1, 2021.

Mr. Clayton Allen is an analyst with the HVZPP who has been assigned to analyze the stock.Mr. Allen has learned that the company has never paid a dividend but expects to begin paying dividends in 2024 with its first-ever dividend of $1.00 per share on January 30, 2024 and a dividend of $1.20 per share on January 30, 2025.Thereafter, the company expects dividends to grow at the rate of 3.0% per year forever.

Investors have been fully informed of the company's plans.After the IPO, CFS will have 20,000,000 shares of stock outstanding.

Mr. Allen has determined that investors expect to earn an annual return of 11% per year on stocks like CFS.