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Nat2105 [25]
3 years ago
9

Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year. The expected growth rate of dividends is

10% for both stocks. You require a rate of return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A
Business
1 answer:
Rama09 [41]3 years ago
4 0

Answer:

The intrinsic value of Stock A is 500

Explanation:

According to the DDM method the formula for calculating the intrinsic value of a stock is

Upcoming Dividend/Required rate of return - Growth rate of stock.

Upcoming Dividend of Stock A= 5

Required rate of return on Stock A= 11% or 0.11

Growth rate on stock A= 10% or 0.10

Intrinsic value of stock A=

5/(0.11-0.10)=5/0.01=500

The intrinsic value of Stock A is 500

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Pharoah Company reported net income of $184,850 for 2017. Pharoah Company also reported depreciation expense of $33,700 and a lo
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