DAA%u2019s stock is currently selling for $18.10 per share. The firm%u2019s inco
ID: 2701529 • Letter: D
Question
DAA%u2019s stock is currently selling for $18.10 per share. The firm%u2019s income, assets, and stock price have been growing at an annual rate of 25 percent and are expected to grow at this rate for 3 more years. No dividends have been declared as yet, but the firm intends to declare a dividend of $2.00 at the end of the last year of its period of supernormal growth (so that D3 = $2.00). After that, dividends are expected to grow at the firm%u2019s normal growth rate of 8 percent. The firm%u2019s required rate of return (r(s)), is 18 percent. What is the expected, or intrinsic, value of this stock today?
*This was answered, but I'm very curious to see the process of solving.
Explanation / Answer
intrinsic value=$12.8
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