Deployment Specialists pays a current (annual) dividend of $1 and is expected to

Question

Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 18% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 7.5%, what is the intrinsic value of Deployment Specialists stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Intrinsic value

$   

THIS IS MY THIRD TIME OF POSTING THIS Q AND I GOT THE WRONG THE ANSWER PLEASE I NEED THE RIGHT ANSWER

Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 18% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 7.5%, what is the intrinsic value of Deployment Specialists stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Computation of the intrinsic value of the stock.We have,

Intrinsic value of stock = D0 (1+g) / (1+Ke) + D0 (1+g)2 / (1+ke )2 + D0 (1+g)2(1+g1) / (ke -g) / (1+ke )2

Intrinsic value of stock = 1(1.18) / (1.075) + 1(1.18)2 /(1.075)2 +  1(1.18)2(1.04) / (0.075 - 0.04) /(1.075)2

Intrinsic value of stock = 1.098 + 1.205 + 35.802

Intrinsic value of stock = $ 38.11

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