Question

4) (1.25 points; partial credit] Based on your analysis, Todd Mountain Development Corporation is expected to pay a dividend of $3.00 in the upcoming year. It just paid a dividend of $2.00. Dividends are expected to grow at a rate of 8%/year. The required rate of return on this stock is 14%/year. Using the constant growth dividend discount model, the intrinsic value of the stock is (show me your work!) (0.75 points; no partial credit] You check on Yahoo Finance: Todd Mountain Development Corporation is currently trading at $40. You should a. buy or buy on margin b. sell or short-sell (no explanations necessary)

Answer 1

1]	Per the "constant growth dividend discount" model, Intrinsic value of the stock = Next expected dividend/(required return-growth rate) =3/(0.14-0.08) =	$             50.00
2]	a] Buy or buy on margin.
	Reason: The stock is underpriced and it would fetch greater retuns
	when the pricing is corrected by the market.