The present value of the stock

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1. IBM's income, assets, and stock price have been growing at an annual rate of 20% and are expected to continue to grow at this rate for 2 more years. They just paid a dividend of $2.00 and will continue to pay at the supernormal growth rate (20%) for the next two years. After that, dividends are expected to grow at the firm's constant growth rate of 8%. The required rate of return is 18%. The present value of the stock is

a. $26.44 b. $23.03 c. $33.15 d. $40.01 e. $36.00

2. In the previous question, if IBM is currently selling for $40.00, then the stock is

a. undervalued by $13.56 b. overvalued by $13.56 c. correctly valued d. overvalued by $16.97 e. undervalued by $16.97

Reference no: EM132003248

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