Question

1. Faya Cosmetics just paid a dividend of $1.20. Its stock has a required rate of return, of 14%, and investors expect the dividend to grow at a constant 10% rate in the future. What is the stocks' intrinsic values? (25 points) How much would be the dividend at year 3? (25 points)

Answer 1

Solution:- Given in Question-

Dividend (DPS0) = $1.20

Required Rate Of Return(r) = 14%

Growth rate(g) = 10%

To Calculate stocks Intrinsic value-

Stock Intrinsic Value = $\frac{Dividend}{K_{e} - G}$

Stock Intrinsic Value = $\frac{1.20}{0.14 - 0.10}$

Stock Intrinsic Value = $30.

Dividend at year 3-

DPS3 = DPS0 ( 1+ G)3

DPS3 = $1.20 ( 1 + 0.10)3

DPS3 = $1.5972

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