Deployment Specialists pays a current (annual) dividend of $1 and is expected to
ID: 2762495 • Letter: D
Question
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of Deployment Specialists stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of Deployment Specialists stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Answer
Figures in $
Particulars
Amount
Dividend for 3rd year
a
1.4976
(1.44*1.04)
Cost of capital - growth rate
b
0.045
(0.085-0.04)
Value of share at the end of year 2* (a/b)
33.28
Figures in $
Year
Dividend
share price
Cash flow
Disc Rate : 8.5%
Present value
C
D
A
B
A+B
C*D
0
1
1
1*1.2
1.2
1.2
0.9217
1.11
2
1.2*1.2
1.44
33.28*
34.72
0.8495
29.49
Present value
30.60
Answer : The intrinsic value of Deployment Specialists stock is $ 30.60
Figures in $
Particulars
Amount
Dividend for 3rd year
a
1.4976
(1.44*1.04)
Cost of capital - growth rate
b
0.045
(0.085-0.04)
Value of share at the end of year 2* (a/b)
33.28
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