Question

An investor has examined Home Depot stock and makes the following predictions for the future:

YEAR	1	2	3	4
DIVIDEND	$1.40	$1.57	$1.52	$1.51

The investor believes the selling price in four years will be $79.98. If the investor wants a 15.00% return to hold the stock, what intrinsic value does the investor put on Home Depot today?

Answer Format: Currency: Round to: 2 decimal places.

Answer 1

Ans 50.00

Year	Project Cash Flows (i)	DF@ 15%	DF@ 15% (ii)	PV of Project A ( (i) * (ii) )
1	1.40	1/((1+15%)^1)	0.870	1.22
2	1.57	1/((1+15%)^2)	0.756	1.19
3	1.52	1/((1+15%)^3)	0.658	1.00
4	1.51	1/((1+15%)^4)	0.572	0.86
4	79.98	1/((1+15%)^4)	0.572	45.73
		PV		50.00