The market consensus is that SuperSmart Corporation has an ROE = 16% and a beta of 1.25, and an expected earnings per share (E ₁ ) of $3.16. The market believes that Super Smart Corporation plans to maintain its 80% retention ratio (b) indefinitely. The expected market return for the next few years is 13% and risk-free assets (10-year Treasuries) yield 5%.

(a) Find the estimate of the intrinsic value of the shares of SuperSmart according to the DDM of constant growth.

(b) Calculate the present value of growth opportunities.

Answer rating: 100% (QA)

a To estimate the intrinsic value of the shares of SuperSmart using the DDM of constant growth we ca... View the full answer