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InterTune, Inc., just paid a dividend of $3.00 per share. You expect the dividend to increase...

InterTune, Inc., just paid a dividend of $3.00 per share. You expect the dividend to increase by 15% next year, 10% the following two years, and then 4% indefinitely thereafter. If you require a rate of return of 10%, what is the most you should be willing to pay for a share of InterTune stock?

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Expert Solution

most you should be willing to pay for a share of InterTune stock                       63.77
Statemnet showing Current Price
Particulars Time PVf 10% Amount PV
Cash inflows (Dividend) = 3*1.10                        1.00                   0.9091                   3.4500                        3.14
Cash inflows (Dividend)                          2.00                   0.8264                   3.7950                        3.14
Cash inflows (Dividend)                          3.00                   0.7513                   4.1745                        3.14
Cash inflows (Price)                        3.00                   0.7513                 72.3580                     54.36
Current Price of Stock                     63.77
P3= D4/ke-g
P3 = 4.1745*1.04/(10%-4%)
P3 = 4.3415/6%
P3 = $72.358

jeff jeffy answered 9 months ago
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