You  are interested in purchasing the common stock of Azure Corporation. The firm  recently paid a dividend of $2.80 per share. It expects its earnings—and  hence its dividends—to grow at a rate of 6.8% for the foreseeable future.  Currently, similar-risk stocks have required returns of 7.2%.

To Do:

a. Given the data above, calculate  the present value of this security. Use the constant-growth model to find the  stock value.
    b. One year later,  your broker offers to sell you additional shares of Azure at $84.
    The most recent dividend paid was $2.92, and the expected growth rate for  earnings remains at 6.8%. If you determine that the appropriate risk premium  is 7.02% and you observe that the risk-free rate, RF, is currently 4.98%,  what is the firm’s current required return, rAzure?
    c. Applying  constant-growth model, determine the value of the stock using the new  dividend and required return from part b.
    d. Given your  calculation in part c, would you buy the additional shares from your broker  at $73 per share? Explain.