Chesapeake, Inc. in Meridian, Mississippi just paid a $1.50 dividend yesterday. Analysts expect the dividend to grow at 20 percent for the next two years, 10 percent the subsequent year, and 4 percent thereafter. In addition, you have estimated the beta of this stock to be 1.40. The 10-year U.S. Treasury is currently yielding 0.90 percent and you estimated the market risk premium to be 6 percent. Assume the CAPM holds.
- What is the required rate of return?
- What is the dividend two years from today?
- When calculating the value of the growing perpetuity, what value do you get and at what point in time is that value?
- What is the current value of this stock?
