The CPI Corporation is expected to pay a real dividend of $1 per share this year. Its expected growth rate of real dividends is 4% per year, and its current market price per share is $20.
a. Assuming the constant-growth DDM is applicable, what must be the real market capitalization rate for CPI?
b. If the expected rate of inflation is 6% per year, what must be the nominal capitalization rate, the nominal dividend yield, and the growth rate of nominal dividends?
c. If the expected real earnings per share are $1.80, what would be your estimate of intrinsic value if you used a simple capitalized earnings model?