Would recommend to buy wmt stocks or to sell short

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WMT just paid an annual dividend (D0) of $2.16. For the next 5 years, the dividends are expected to grow at the rate of 5.5% per year (based on projections in ValueLine). Assume that the dividend in year 6 is expected to grow from D5 at the rate of 8%, and all the subsequent dividends until year 10 will grow at 8%. Assume that the dividend in year 11 is expected to grow from D10 at the rate of 5% and all the subsequent dividends will grow by 5% as well, forever. Required rate of return: assume that the risk-free rate is equal to 4.25% per year forever and that the market risk premium from 2021 will stay constant forever as well. Assume the measure of economy-wide risk WMT is associated with today will stay constant forever as well. Imagine that you are working for a hedge fund.

Problem 1: Would you recommend to buy WMT stocks or to sell them short (i.e. borrow the stocks from a broker, sell them on the open market, and hope to buy WMT shares back later at a lower price)? Why?

Reference no: EM132815510

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