Redwood Leathers currently trades in the markets at $12. The firm last month declared a dividend...

Redwood Leathers currently trades in the markets at $12. The firm last month declared a dividend of $0.20 per share. Analysts predict the firm to grow at 6% every year. What is the intrinsic value of the firm? The investors currently require a 7% rate of return. What is the cost of capital?

Expert Solution

Using Constant Growth Model,

Stock Price = 0.20(1.06)/(0.07 - 0.06)

Stock Price = $21.20

jeff jeffy answered 2 years ago

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