Youve been asked to determine the fair value of V-Labs Corporation. Youve determined that

V Labs dividends will grow at a rate equal to ROE*Plowback forever.

V Labs pays dividends once a year, and the most recent dividend was just paid yesterday.

V Labs debt to asset ratio is 25% and is expected to remain constant.

V Labs ROE is expected to be constant at 13% per year,

V Labs Payout Ratio is expected to be constant at 80%.

V Labs level of equity on the balance sheet is $40 (on a per share of stock basis).

V Labs has 10 million shares of stock outstanding,

Given the risk of the stock, youve estimated that V Labs fair rate of return is E[r] = 8% per year.

V Labs stock is currently trading at $62 per share.

Given this information, answer the following questions:

Part A

What is the size of the dividend per share you expect XYZ to pay next year?

Part B

At what rate will dividends grow in the first 6 years?

Answer as a decimal, not a percent, using at reasonable level of precision.

Part C

What is the fair price of the stock per share, today?

Part D

If the stock is actually selling for $62 per share today, is it currently over-priced, underpriced, or fairly priced?

Part E

What do you expect the stock to be selling for 5 years from today? (i.e. what is the fair price, 5 years from today immediately after the dividend at t = 5?)

Part F

If you bought the stock today for its actual price of $62 per share, and held it for five years (collecting five dividends at t = 1, 2, 3, 4, and 5) and then sold it for a fair price in 5 years (i.e. at the price you computed in Part E), what annualized IRR would you, as an investor, expect to earn over this 5 year period? Report the IRR as a decimal, not as a percent, to 4 significant digits.

Part G

Now repeat Part F, but now assume that instead of paying the actual price, today, of $62 per share, you pay todays fair price of the stock (which you computed in Part C).

You then hold the stock for five years, (collecting 5 dividends), and then sell the stock for a fair price in 5 years. If you do so, then what annualized IRR will you earn? For accuracy, Id suggest you compute the IRR using Excels IRR command.

Answer in a decimal format, not as a percent, using at least 4 digits of precision.