Respuesta :
Answer:
The correct answer to the following question is $30.60 .
Explanation:
The given information -
Present dividend ( D0 ) - $1
Dividend growth rate for the first 2 years (G1 ) - 20%
after 2 years it is ( G2)- 4%
Required return for specialist ( R ) - 8.5%
Here for calculating the intrinsic value, the first thing to do would be to take out the dividend for the year 1 and 2 , so to calculate the formula used would be -
Dividend for year 1 = D0 X ( 1+G1)
= $1 X ( 1 + 20%)
= $1.20
Dividend for year 2 = D0 X ( 1+G1)
= $1.20 X ( 1 + 20%)
= $1.44
After this the next thing to do is to take out terminal value , were we will use the growth rate of 4%
= Dividend for second year x (1+G2) / ( R - G2)
= $1.44 X ( 1 + 4% ) / (8.5% - 4%)
= $33.28
Now we will calculate the intrinsic value with the formula ,
Dividend year 1 / (1+ R)^1 + (Dividend year 2 + Terminal value) / (1+R)^2
= $1.20 / (1+8.5%) + $1.44 + $33.28 / (1+8.5%)
= $1.1060 + $29.4931
= $30.599
= $30.60
If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of its stock is $30.60.
Intrinsic value
Dividend for year 1 = D0× ( 1+G1)
Dividend for year 1= $1 ×( 1 + 20%)
Dividend for year 1= $1.20
Dividend for year 2 = D0 × ( 1+G1)
Dividend for year 2= $1.20 × ( 1 + 20%)
Dividend for year 2= $1.44
Terminal value= Dividend for second year x (1+G2) / ( R - G2)
Terminal value= $1.44 × ( 1 + 4% ) / (8.5% - 4%)
Terminal value= $33.28
Intrinsic value=Dividend year 1 / (1+ R)^1 + (Dividend year 2 + Terminal value) / (1+R)^2
Intrinsic value= $1.20 / (1+8.5%) + $1.44 + $33.28 / (1+8.5%)
Intrinsic value= $1.1060 + $29.4931
Intrinsic value= $30.599
Intrinsic value= $30.60 (Approximately)
Inconclusion If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of its stock is $30.60.
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