In Problem 10‐1, assume that the growth rate for the first five years is 25 percent rather than 30 percent. How would you expect the value calculated in Problem 10‐1 to change? Confirm your answer by calculating the new intrinsic value.

Problem 10‐1

Boni Software Products is currently paying a dividend of $1.20. This dividend is expected to grow at the rate of 30 percent a year for the next five years, followed by a growth rate of 20 percent a year for the following five years. After 10 years, the dividend is expected to grow at the rate of 6 percent a year. The required rate of return for this stock is 21 percent. What is its intrinsic value?