Your personal financial advisor is trying to get you to buy the stock of Eagle Healthcare, a local drug and alcohol rehabilitation company. The stock has a current market price of $35, its last dividend (D0) was $2.50, and the company’s earnings and dividends are expected to increase at a constant growth rate of 8 percent. The required return on this stock is 15 percent. From a strict valuation standpoint, should you buy the stock?
Include the solution for deciding to buy or not buy the stock.
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