Question

Which money manager should Nick here? Why? Chyna Snow 5 Chyna Soow considers herself to be a s y vale-oriented investor She is always on the lookout for w ins in the market Chy is considering the purchase of one or more of the following stocks Use the information provided below to estimate the value of each company's shares Based on your way the dividend growth model, which stock or stocks should Chyna purchase Stock C Stock D Stock A $60.00 $2.00 Stock B $25.75 $1.85 7.18% 3.50% $9.35 $0.80 Current Price Current Dividend Dividend Yield Dividend Growth Rate Chyna's Required Rate of Retum Stock E $89.50 $3.68 $145.00 $3.56 2.46% 5.20% 2.50% 3.75% 9.40% 9.40% 9.40% 9.40% 9.40% Julie Cupples

Answer 1

Price Dividend Div Yield Div growth Rate of return 3.33% 4.00% 9.40% 25.75145 1.85 3.56 718% 2.46% 3.50% 5.20% 9.40% 9.40% 2.50% 9.40% Fair price as per dividend discount model = Dividend growth/tate return Growth rate Fair price 38.52 32.45 89.17 11.88 Overpriced Yes No Yes No since stock B D are underpriced and hence we should invest in the stock for etting capital appreciation in future