Question

SCI just paid a dividend of $2.16 per share, and its annual dividend is expected to grow at a constant rate of 4.50% per year. If the required return on SCI's stock is 11.25%, then the intrinsic value of SCI's shares is _____ per share.

Answer 1

Answer:

$33.44

Explanation:

The computation of the intrinsic value of the share is shown below:

= Next year dividend ÷ (Required rate of return - growth rate)

where,

Next year dividend is

= $2.16 + $2.16 × 4.50%

= $2.16 + $0.0972

= $2.2572

The required rate of return is 11.25%

And, the growth rate is 4.50%

So, the intrinsic value is

= ($2.2572) ÷ (11.25% - 4.50)

= $33.44