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QUESTION 9 As an analyst for Silverman Sachs, you are following an online retailer Bigmart.com, and have gathered information and made estimates as given in the table below. In addition, you observe that current treasury rates are 6.25% per year and your firm estimates the market return to be 12%. a) What is the dividend expected in Year 4 for Bigmart.com? Be sure to include a dividend in each of the years in the provided table. b) What is the cost of equity for Bigmart.com? c) Given these inputs, what is the maximum price that you would be willing to pay now for a share of Bigmart.com? d) You notice that Bigmart currently trades for $2/ share (ex dividend). Will you recommend a "Buy" or "Sell" to your clients for these stocks? e) Explain your reasoning to the question above. f) If your client ignores you and purchases the share anyways (and sells at the end of year 4, what return would you expect them to earn? g) Comment on how this return compares to the required return you have estimated for the stock. QUESTION 9 As an analyst for Silverman Sachs, you are following an online retailer Bigmart.com, and have gathered information and made estimates as given in the table below. In addition, you observe that current treasury rates are 6.25% per year and your firm estimates the market return to be 12%. a) What is the dividend expected in Year 4 for Bigmart.com? Be sure to include a dividend in each of the years in the provided table. b) What is the cost of equity for Bigmart.com? c) Given these inputs, what is the maximum price that you would be willing to pay now for a share of Bigmart.com? d) You notice that Bigmart currently trades for $2/ share (ex dividend). Will you recommend a "Buy" or "Sell" to your clients for these stocks? e) Explain your reasoning to the question above. f) If your client ignores you and purchases the share anyways (and sells at the end of year 4, what return would you expect them to earn? g) Comment on how this return compares to the required return you have estimated for the stock

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