Question

Universal Furniture Offerings, symbol UFO, is currently selling for $31 per share. The dividends for the next three years are expected to be $0.18 for 2019, $0.24 for 2020, and $0.28 for 2021. We forecast the price per share to be $44 at the end of 2021. If we desire a rate of return of 8%, using the Discounted Cash Flow Model, would we consider this a good investment? What do we believe UFO is worth?

Answer 1

Price of stock today =Dividend 2019/(1+Rate)+Dividend 2020/(1+Rate)^2+Dividend 2021/(1+Rate)^3++Price in 2021/(1+Rate)^3
=0.18/1.08+0.24/1.08^2+0.28/1.08^3+44/1.08^3 =35.52
Yes it worth an investment as market value of share is less than intrinsic value of share.
UFO is worth 35.52