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Caskey Inc. is experiencing a period of growth. Dividends are expected to grow at a rate...
Caskey Inc. is experiencing a period of growth. Dividends are expected to grow at a rate of 12.00% for the next two years and 5.00% thereafter. Yesterday the corporation paid a dividend of $1.15. If the required rate of return is 8.00%, what is the intrinsic value of the stock?
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| Year | Growth rate | Dividend computation | Dividend | PV factor @8%, 1/(1+r)^time | Dividend * PV factor |
| 1 | 12.00% | 1.15*(1+12%) | $ 1.29 | 0.9259 | $ 1.19 |
| 2 | 12.00% | 1.29*(1+12%) | $ 1.44 | 0.8573 | $ 1.24 |
| 2 | $ 50.49 | 0.8573 | $ 43.29 | ||
| Current share price | $ 45.72 | ||||
| Current Dividend | $ 1.44 | ||||
| Rate of return | 8.00% | ||||
| Growth Rate | 5.00% | ||||
| Share Price at the horizon i.e. T2 | =Current Dividend*(1+Growth rate)/(Rate of return-Growth Rate) | ||||
| Share Price at the horizon i.e. T2 | =1.44256*(1+0.05)/(0.08-0.05) | ||||
| Share Price at the horizon i.e. T2 | $ 50.49 | ||||
| Current share price | $ 45.72 | FROM above table |
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