Westover Winds, which just paid annual dividends of $ 1 . 8 0 per share ( DPS
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Question:
Westover Winds, which just paid annual dividends of $ per share DPS has a stock beta of The company will increase its DPS by next year, and will then reduce its dividends growth rate by percentage points per year, ie growth rate is for the second year, until it reaches the industry average growth rate of percent. Afterwards, its DPS will maintain the constant growth rate with a dividend payout ratio of indefinitely. Assume that the riskfree rate is and the market risk premium is
a State the specific cash flow patterns for the dividend streams in the i finite growth
stage; and ii infinite growth stage; respectively. Precisely explain your answers!
b Compute the intrinsic value of the stock today;
c Compute the values of income and growth components, respectively, and the capital
gains yield of the stock at the end of the finite growth stage.
d If the stock price is $ today, precisely explain your investment recommendation
on the stock according to the Intrinsic Value Analysis.
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