JRN Inc. is expected to have a high growth rate in the next 3 years so...

JRN Inc. is expected to have a high growth rate in the next 3 years so its dividends are expected to grow at 20% per year in the next 3 years. After that dividends are expected to grow at a stable 5% per year forever. Its most recent dividend was $3 per share and its equity cost of capital is 12%. What is the stock's intrinsic value per share?

Answers:

A) $65.70

B) $71.20

C) $56.30

D) $63.20

Expert Solution


i	ii		iii	iv=ii+iii	v	vi=v*iv
year	Dividend		Terminal value	Total cash flow	PVIF @ 12%	present value
1	3.60	3*120%		3.60	0.892857	3.21
2	4.32	3.6*120%		4.32	0.797194	3.44
3	5.18	=4.32*120%	77.76	82.94	0.71178	59.04


						65.70

Therefore answer is option A )			$ 65.70



Computation of terminal value = expected dividend in year 4/(required rate - growth rate)
			=5.18*105%/(12%-5%)
			77.76

jeff jeffy answered 1 month ago

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