Question

Deployment Specialists pays a current (annual) dividend of $1.00 and is expected to grow at 20% for 2 years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of its stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

$30.80

Explanation:

Intrinsic value

V0=D1/1+k +D2/(1+k)^2 +DH+PH/(1 +k)^H

Let plug in the formula

First step

V0=$1 × 1.2/(1+0.085) +($1 × 1.2)^2/(1+0.085)^2 +($1 × 1.2)^2*1.04/(0.085-0.04)*(1+0.085)^2

Second step

V0=1.2/1.085+1.44/1.007225+1.44*1.04/0.045*1.177225

Third step

V0=1.2/1.085+1.44/1.007225+1.4976/0.052975

Fourth step

V0=1.10599+1.42967+28.26993

V0=$30.80

Therefore the intrinsic value of its stock will be $30.80