FINANCE-The board of directors of API, a relatively new electronics manufacturer

QUESTION

The board of directors of API, a relatively new electronics
manufacturer, has decided to beginning paying a common stock dividend to
increase the attractiveness of the stock in the free market. The board plans to
pay $3.00 per share in the coming year (i.e., next year) and anticipates that
its future dividends will increase at an annual rate consistent with that
experienced over the period from 2009 – 2012 (see below). The company currently
has a beta of 1.1, the rate of return for the market is expected to be 10% and
the risk-free rate is currently 4%. Given this scenario, what is the current
value of API’s common stock? If the current market price is $40.00 per share,
should you purchase this stock. Briefly, explain your answer. (HINT:
This problem requires a three-part calculation to solve it). USE MS EXCEL TO
CONDUCT YOUR CALCULATIONS (do NOT round your interim calculations, rather use
links between the cells), then post your spreadsheet using this link (click on
“Textbook Assignment 2,” above).


Year Dividend
2012 $2.81
2011 $2.70
2010 $2.60
2009 $2.50

ANSWER:

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