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Rocking technologies RT have just developed a solar panel capable of 200% more electricity than any...

Rocking technologies RT have just developed a solar panel capable of 200% more electricity than any solar panel currently on the market. As a result, RT is exoected to experience a 15% annual growth rate for the next 5 years. By the end of year 5, other firms will have developed comparable technology and RT’s growth rate will slow to 5% per year indefinitely. stockholders require a 6% return on tje stock. The most recent annual dividend (D0) was paid yesterday at $1.55 per share. What are the expected dividends for years 1-5. What is the intrinsic value of the stock?

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Expert Solution

Required rate= 6.00%
Year Previous year dividend Dividend growth rate Dividend current year Horizon value Total Value Discount factor Discounted value
1 1.55 15.00% 1.7825 1.7825 1.06 1.6816
2 1.7825 15.00% 2.049875 2.049875 1.1236 1.82438
3 2.049875 15.00% 2.35735625 2.35735625 1.191016 1.97928
4 2.35735625 15.00% 2.710959688 2.710959688 1.26247696 2.14733
5 2.710959688 15.00% 3.117603641 327.348 330.4656036 1.338225578 246.94312
Long term growth rate (given)= 5.00% Value of Stock = Sum of discounted value = 254.58
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 5 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

jeff jeffy answered 1 year ago
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