ABC Corporation
ABC Corporation just paid a dividend of $1.50 a share. The dividend is expected to grow at 10% a year for the next 2 years, and the 5% per year thereafter. The required return to invest in ABC stock is 12.50%.
-What is the intrinsic value (or current price)of ABC?

Question

Quizplus · Accepted Answer

Dividend in year 2 = $1.50*1.10*1.10 = $1.82
Selling price at year 2 = $1.82 * 1.05 / (.125 - .05)= $25.41
Price = PV of cash flows = 1.65/1.125 + (1.82+25.41)/(1.125)^2

ABC Corporation ABC Corporation Just Paid a Dividend of $1.50 a Share