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Hartley Corp. just paid its annual dividend of $1.60 to its common shareholders. It expects dividends...

Hartley Corp. just paid its annual dividend of $1.60 to its common shareholders. It expects dividends to grow at an annual rate of 20% for the next 3 years, followed by a constant rate of 5% thereafter (indefinitely). The required return on Hart common stock is 10%. What is intrinsic value of Hartley common stock? Select one: a. $60.83 b. $49.35 c. $32.72 d. $34.27 e. $64.26

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Expert Solution

Intrinsic Value = b. $49.35
Statemnet showing Current Price
Particulars Time PVf 10% Amount PV
Cash inflows (Dividend)                            1.00                    0.9091                    1.9200                      1.75
Cash inflows (Dividend)                            2.00                    0.8264                    2.3040                      1.90
Cash inflows (Dividend)                            3.00                    0.7513                    2.7648                      2.08
Cash inflows (Price)                          3.00                    0.7513                  58.0608                    43.62
Current Price of Stock                    49.35
P3 = D4/(ke-g)
P2 = 2.7648*1.05/(10%-5%)
P2 = 2.903/(5%)
P2 = $58.0608

jeff jeffy answered 1 year ago
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