The Duo Growth Company just paid a dividend of $1.60 per share. The dividend is

Question

The Duo Growth Company just paid a dividend of $1.60 per share. The dividend is expected to grow at a rate of 22% per year for the next three years and then to level off to 8% per year forever. You think the appropriate market capitalization rate is 23% per year. a. What is your estimate of the intrinsic value of a share of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete and correct. Intrinsic value per 15.92 . share b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? (Do not round intermediate calculations. Round your answer to 2 decimal places.) O Answer is complete and correct. Expected dividend yield 12.26 O %

Explanation / Answer

Answer : part c

Expected price to be one year from now:

Current price (po) =

( Price at the end of year 1(P1) + Dividend at the end of year 1 )/ (1 + Market capitalization rate )^1

15.92 = [P1 + 1.60(1 + 0.22)] / (1+0.23)

15.92 = [P1 + 1.952)/ (1.23)

15.92 x 1.23 = P1 + 1.952

P1 = 15.92 x 1.23 - 1.952

P1 = 19.5816 - 1.952

P1 = $17.63

So price to be one year from now. $17.63 (answer)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.