1. You are analyzing General Electric's common stock as a potential investment. You estimate that GE's dividends will grow at an average rate of 5.5% per year over the long term. GE's last dividend, (we assume, paid yesterday) was 2.50. You require a return of 13% to invest in GE stock. The current stock price is $38.
   1. What is your estimate of the stock's intrinsic value?
   2. What is your investment decision?
   3. that you believed that dividends would grow at 7% forever. What is your estimate of IV?
   4. What is your investment decision?
   5. Assume that g will be .055, but that the firm's risk is greater due to the worldwide recession, and that your required return is .15. What is the stock's IV?

Answer rating: 100% (QA)

To calculate the intrinsic value IV of GE stock using the dividend growth model 1 With a dividend gr... View the full answer