Question

AI intelligence, a new artificial intelligent for medical devices company, is expected to experience short-term supernormal dividend growth rates of 20% in year 1, 15% in year 2 and 12% in year 3. After 3 years of supernormal growth, this company dividend is expected to grow at a constant rate of 5%. However, today due to an increased demand for medical devices, analysts have made an upward projection on its short-term growth rates to 35% in year 1, 25% in year 2 and 18% in year 3 and long-term constant growth rate of 5%. If the most recent dividend paid is $1 per share and its required return remains at 15%, approximately how much do you expect the change in AI intelligence stock price per share today (indicate an increase or a decrease in stock price and show your calculation steps)?

Answer 1

EXPECTED INCREASE IN SHARE PRICE = +3.733

PRICE OF SHARE WITH GROWTH RATE 20% , 15% AND 12% RESPECTIVELY

year	expected dividend		PVF@15%	PV OF DIVIDEND
1	1x1.2	1.200	0.870	1.043
2	1.2x1.15	1.380	0.756	1.043
3	1.380*1.12	1.546	0.658	1.016
				3.103
price of share at the end of 3rd year (P3)=		d3 x (1+g)
		ke- g
	=	16.229
present value of share =		PV of P3 + PV of dividends
	=	P3 x PVF@15% + PV of dividends
	=	13.774

PRICE PER SHARE AFTER 3 YEARS WITH GROWTH RATE 35% , 25% AND 18% RESPECTIVELY

year	expected dividend		PVF@15%	PV OF DIVIDEND
1	1x1.35	1.350	0.870	1.174
2	1.35x1.25	1.688	0.756	1.276
3	1.688*1.18	1.991	0.658	1.309
				3.759
price of share at the end of 3rd year (P3)=		d3 x (1+g)
		ke- g
	=	20.908
present value of share =		PV of P3 + PV of dividends
	=	P3 x PVF@15% + PV of dividends
	=	17.507

CHANGE IN PRICE OF AI INTERLLIGANCE = 17.507 - 13.774

= 3.733

PLEASE APPRECITAE THE WORK