1 1000pnt

Question

Question

business finance

Answer 1

Answer #1

Step-1, Dividend per share for the first 2 years

Dividend in Year 1 (D1) = $1.20 per share [$1 x 120%]

Dividend in Year 2 (D2) = $1.44 per share [$1.20 x 120%]

Step-2, Calculation of Stock Price in Year 2 (P2)

Stock Price in Year 2 = D2(1 + g) / (Ke – g)

= $1.44(1 + 0.03) / (0.10 – 0.03)

= $1.48 / 0.07

= $21.19 per share

Step-3, Intrinsic Value

The Intrinsic Value is the aggregate of present value of future dividends and Stock Price in Year 2

Intrinsic Value = D1/(1 + Ke)¹ + D2/(1 + Ke)² + P2/(1 + Ke)²

= $1.20/(1.10)¹ + $1.44/(1.10)² + $21.19/(1.10)²

= [$1.20 / 1.10] + [$1.44 / 1.21] + [$21.29 / 1.21]

= $1.09 + $1.19 + $17.51

= $19.79 per share

“Therefore, The Intrinsic Value of the Deployment Specialists Stock = $19.79”

Answer 2

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