FWP Co.'s P/E ratio is 13. The stock's beta is 1.3; the risk free rate is 2%; the expected market rate of return is 11%. The last dividend was $1.80 and dividends are expected to grow at 3% annually for the foreseeable future. To find the intrinsic value of this stock, we should

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Quizplus · Accepted Answer

The intrinsic value can be calculated using the Gordon Growth Model: P = D1 / (k - g). Here, D1 is the next dividend ($1.80 * 1.03 = $1.85), k is the required rate of return (calculated using CAPM: 2% + 1.3*(11% - 2%) = 13.7% or 0.137), and g is the growth rate (3% or 0.03). Thus, P = $1.85 / (0.137 - 0.03) = $1.85 / 0.107.

FWP Co'S P/E Ratio Is 13