You are forecasting a stock to pay the following dividends: $4.65 , $3.45 , $4. The...

You are forecasting a stock to pay the following dividends:
$4.65 , $3.45 , $4.

The dividends will then begin declining at a rate of 8.0% for the foreseeable future. What is the intrinsic value of this stock if the required return is 14%?

Expert Solution

Intrinsic Value of stock is $20.72
Statemnet showing Current Price
Particulars	Time	PVf 14%	Amount	PV
Cash inflows (Dividend)	1.00	0.8772	4.6500	4.08
Cash inflows (Dividend)	2.00	0.7695	3.4500	2.65
Cash inflows (Dividend)	3.00	0.6750	4.0000	2.70
Cash inflows (Price)	3.00	0.6750	16.7273	11.29
Current Price of Stock				20.72

P3= D4/ke-g
P3 = 4*.92/(14%-(-8%)
P3 = 3.68/(22%)
P3= 16.7273

jeff jeffy answered 2 years ago

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