Question

In: Finance

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%?

Solutions

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

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