In: Finance
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
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 |