The duo growth company just paid a dividend of $1 per share. the dividend is expected to grow at a rate of 25% per year for the next 3 years and then to level off to 5% per year forever. you think the appropriate market capitalization rate is 20% per year. (a) what is your estimate of the intrinsic value of a share of the stock? (b) if the market price of a share is equal to this intrinsic value, what is the expected dividend yield? (c) what do you expect its price to be 1 year from now? is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate? explain.

a) 11.17 dollar

b) dividend yield 11.19%

c) next year the sotck price will be 13.96

Explanation:

The intrinsic value is the present value of the future dividends:

first we calcualte the future divididends by multipling the recent dividends by the grow rates:

D0 = 1

D1 = D0 x (1 + 25%) = 1.25

D2 = D1 x (1 + 25%) = 1.563

D3 = D2 x (1 + 25%) = 1.954

for the future dividends which grow indefinitely at % we use the gordon model

D4 = D3 x (1 +   5%) = 2.05

grow 5%

return 20%

Then we discount each dividend to bring them at present date using the present value of lump sum formula:

Finally we just add it and get the intrincis value.

B) dividend yield: dividends / price:

1.25/11.17 = 0,11190 = 11.19%

C) the stock will grow at grow rate:

11.17 x 1.25 = 13,96

the answer is either "loser" or "dumb*ss"

gods, i'm only joking, don't ban me.*

was my answer wrong?