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a) Deployment Specialist pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialist is 8.5%, what is the intrinsic value of its stock

Respuesta :

haseebkhuhro256

Answer:

Explanation:

we will apply multi stage dividend growth model = Do(1+g)/Ke-g

Do = Dividend just paid

(1+g) =  Dividend for next year

Ke = Return

g = Growth in dividend

                                  Year       Year      Year

                                     0                    1                 2

                                                      20%            20%

Dividend                              1             1.2            1.44

infinity value @4%                                                       44.8 8*

Present value @8.5%         1            1.11111    39.64334

 

Value of stock=1+1.111111111+  39.64334= 41.75445

*Do(1+g)/Ke-g

 1.44(1+4%) / 8.5%-4%

 2.016  / 4.5%

Value= 44.88

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