Answered

the duo growth company just paid a dividend of $1.00 per share. the dividend is expected to grow at a rate of 23% per year for the next three years and then to level off to 5% per year forever. you think the appropriate market capitalization rate is 18% per year. a. what is your estimate of the intrinsic value of a share of the stock?



Answer :

Estimate of the intrinsic value of a share of the stock- 11.17% of a dollar

The present value of upcoming dividends is the intrinsic value.

First, we multiply the most recent dividends by the growth rates to calculate the future dividends:

D0 = 1

D1 = D0 x (1 + 25%) = 1.25

D2 = D1 x (1 + 25%) = 1.563

D3 = D2 x (1 + 25%) = 1.954

We utilize the Gordon model to predict future dividends, which will grow at a constant rate.

divdends/ return-growth = Intrinsic value

D4 = D3 x (1 + 5%) = 2.05

grow 5%

yield 20%

2.05/0.2-00.5 = 13.76

The present value of lump sum formula is then used to discount each dividend to bring it to the present.

Finally we just add Intrinsic Value-

Learn more about Intrinsic value- https://brainly.com/question/27908904

In the end, we just add it to obtain the intrincis value.

View image QWSapphire

Other Questions