Find the value of the stock

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Reference no: EM132524267

Assume you've generated the following information about the stock of Bufford's Burger Barns:

The company's latest dividends of $4 a share are expected to grow to $4.32 next year, to $4.67 the year after that, and to $5.04 in three years. After that, you think dividends will grow at a constant 6% rate.

a. Use the variable growth version of the dividend valuation model and a required

return of 15% to find the value of the stock.

b. Suppose you plan to hold the stock for three years, selling it immediately after receiving the $5.04 dividend. What is the stock's expected selling price at that time? As in part (a), assume a required return of 15%

c. Suppose the stock's current market price is actually $44.65. Based on your analysis from part a, is the stock overvalued or undervalued?

Reference no: EM132524267

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