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1) You are supposed to analyze the price of Alibaba (BABA) stock: The company just paid the dividend of $2.
1) You are supposed to analyze the price of Alibaba (BABA) stock:
The company just paid the dividend of $2.04. For the next 5 years, the dividends are expected to grow at the rate of 8% per year (according to Valueline.com). The dividend in year 6 will grow from D5 at the rate of 6%, and all the subsequent dividends will grow by 6% as well, forever.
Required rate of return: assume that the risk-free rate is equal to 5% per year forever and that the risk premium you are entitled to demand for your willingness to hold an asset with average riskiness in 2018 will stay constant forever as well.
Based on the info you uncovered above (i.e. NOT, say, based on accounting profits, your opinion about the quality of company's management, the future of the retailing industry, etc.), should you buy shares of BABA *today*? Why or why not?
