You are interested in purchasing the common stock of Inch, Inc., which is currently priced at $ 40. The company is expected to pay a dividend of $3 next year and to grow at a constant rate of 8 percent.

1. What should the market value of the stock be if the required rate of return is 15.75 percent? (1mark)
2. Is this a good buy? Why or why not? (1mark)