Answer:
The intrinsic value of the stock is $21.52
Explanation:
To calculate the intrinsic value of the stock, we will use the constant growth model of the dividend discount model (DDM). The DDM values the stock based on the present value of the expected future dividends from the stock. The formula for price today under the constant growth model of DDM is,
P0 = D0 * (1+g) / r - g
Where,
- D0 * (1+g) is D1 or the next expected dividend
- r is the required rate of return
- g is the growth rate in dividends
First of all, we need to calculate the r or required rate of return using the CAPM equation,
r = rRF + Beta * (rM - rRF)
Where,
- rRF is the risk free rate
- rM is the return on market
r = 0.024 + 1.12 * (0.107 - 0.024)
r = 0.11696 or 11.696%
P0 = 2 * (1+0.022) / (0.11696 - 0.022)
P0 = $21.52
You write some things that you are good at and some things that youthink other people value about you
Answer:
Explanation:
Cash flow is 530 , 690 , 875 and 1090 in 1st to 4 th year respectively
discount rate = 10 %
NPV = 530/ 1.10 + 690 / (1.10)² + 875/(1.10)³ + 1090/ (1.10)⁴
= (530x1.10³ + 690 x 1.10² + 875x 1.10 + 1090)/ 1.10⁴
= (705.43 x +834.9 +962.5 +1090)1.10⁴
= 3592.83 / 1.10⁴
= 2453.95
Discount rate 18%
NPV = 530/ 1.18 + 690 / (1.18)² + 875/(1.18)³ + 1090/ (1.18)⁴
= (530x1.18³ + 690 x 1.18² + 875x 1.18 + 1090)/ 1.18⁴
= (870.80696 +960.756 +1032.5 +1090)1.18⁴
= 2039.46
Discount rate 24%
NPV = 530/ 1.24 + 690 / (1.24)² + 875/(1.24)³ + 1090/ (1.24)⁴
= (530x1.24³ + 690 x 1.24² + 875x 1.24 + 1090)/ 1.24⁴
1010.51072+ 1060.944+1085+1090 / 1.24⁴
= 1796.14
