A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today?

Question

Quizplus · Accepted Answer

Intrinsic value at time 3 = $2*(1+0.06)/(0.14−0.06) = $26.50 plus $2 dividend paid in year 3 Intrinsic value today = $28.50/(1.14)³ =$19.24

A Firm Is Planning on Paying Its First Dividend of $2