Calculate is the fair market value of the stock now

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Reference no: EM132015985

Gillette Corp. is expected to grow its dividends and earnings at various rates. The company just paid a cash dividend of $1.50 per share. The company expects to grow its dividend at 3% per year for each of the next two years, then 5% each year for each of the following two years, after which the company expects to grow at a constant rate of 8% per year indefinitely.

a) use the required return from a previous problem to calculate is the Fair Market Value (FMV) of the stock now. Show a timeline of the cash flow.

b) if the stock trades at $40 per share now, is the stock undervalued or overvalued?

Reference no: EM132015985

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