Tom Owens has made a presentation to his prospect, Zero Enterprises. No matter how he has tried to move the call forward, he has
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Answer:
This question is incomplete since the required return is not pasted here. I checked on the web and found similar question with the firm's required rate of return is 18 percent. You can use this to solve the question as follows.
Explanation:
Use Dividend Discount Model (DDM) to find the intrinsic value of the stock.
Find the present value of dividends
D3 = 2
PV(of D3) = 2/(1.18^3) = 1.2173
D4 = D3(1+g) = 2(1+0.06) = 2.12
PV(of D4) =
PV (of D4) = 17.6667/ 1.6430 = 10.7527
Next, sum up the present values ;
= 1.2173 + 10.7527
= $11.97
Therefore, DAA's stock is currently overpriced ,so you should not buy it since it is only valued at $11.97 and not $15.