Is the stock overvalued or undervalued

Assignment Help Financial Management

Reference no: EM131064876

IBM has generated annual dividend growth of 15.1% over the past 3 years. IBM's most recent annual dividend is $2.90. Assume IBM will continue to increase dividends at 15.1% for the next 5 years before reducing its dividend growth to 6% for the long term. Also assume that the required return for IBM stock is 9.5%. It is currently trading for $179.90.

1) Use the two-stage dividend discount model to determine the current intrinsic value for IBM given these assumptions.

2) Is the stock overvalued or undervalued? Briefly explain the possible reasons for your response.

3) What long term dividend growth rate will provide an intrinsic value similar to the current market price? (Leave all other assumptions in place.)

4) Reset the long term dividend growth rate to 6%.

5) What required rate of return would provide an intrinsic value similar to the current market price? (Leave all other assumptions in place.)

Reference no: EM131064876

Questions Cloud

Is there an existing free trade agreement : GB540 - Economics for Global Decision Makers - Purpose of this assignment is to provide you with an opportunity to research and analyse two trading partners of Australia.

What will your collaborative partners say about measurements : Which methods make the most sense for the case you are creating, and why? What will your collaborative partners say about these measurements? Support your points with appropriately cited references to the readings as necessary.

How energy and materials flow in your local ecosystem : The biotic and abiotic environmental components involved in this issue and how their interaction has affected the diversity of organisms in your environment. How energy and materials flow in your local ecosystem and how this is related to your sele..

Distinction between higher and lower levels in this context : distinction between higher and lower levels in this context?

Is the stock overvalued or undervalued : IBM has generated annual dividend growth of 15.1% over the past 3 years. IBM's most recent annual dividend is $2.90. Assume IBM will continue to increase dividends at 15.1% for the next 5 years before reducing its dividend growth to 6% for the long t..

Write a seven pages paper about us foreign policy : Write a seven pages paper about US Foreign Policy. American foreign policy from 1947 to 1989 was defined by the Cold War. Please discuss areas of continuity and change in US Foreign Policy during the first 20 years (roughly 1990 - 2010) after the C..

Paying interest for each of the first six payments : For a $24,000 student loan with a 6% APR, how much of the payment will go toward the principal and how much will go toward paying interest for each of the first six payments? Assume this is a 10-year loan with monthly payments.

What are the expected return and risk of the portfolio delta : The portfolio Alpha has an expected return of 18.50% and risk of 60%. The portfolio Gamma has an expected return of 11.75% and risk of 30%. The risk of market portfolio is 40%. Ms. Investor would like to create the portfolio Delta by utilizing the ri..

Which is important feeding adaptation among deep-sea fishes : An unknown fish has been brought to the student to examine. This fish is black, relatively small with small eyes and weak, flabby muscles. This fish is most likely from which zone?

User Account

All Pages