Micro Corp.just paid dividends of $2 per share.Assume that over the next three years dividends will grow as follows,5% next year,15% in year two,and 25% in year 3.After that growth is expected to level off to a constant growth rate of 10% per year.The required rate of return is 15%.Calculate the intrinsic value using the multistage model.
A) $5.56
B) $66.4
C) $49.31
D) $43.66
E) none of the above

Question

Quizplus · Accepted Answer

$$\begin{aligned}
\text { Price } & = \frac { 2 ( 1.50 ) } { 1.15 } + \frac { 2 ( 1.50 ) ( 1.15 ) } { 1.15 ^ { 2 } } + \frac { 2 ( 1.05 ) ( 1.15 ) ( 1.25 ) } { 1.15 ^ { 3 } } + \frac { \frac { 2 ( 1.05 ) ( 1.15 ) ( 1.25 ) ( 1.1 ) } { .15 - .1 } } { 1.15 ^ { 3 } } \
& = \$ 49.31
\end{aligned}$$