Question
Frieda would like to purchase the stock of Farflung Corp. The company plans to pay a dividend of $3.58 next year and projects that the
Frieda would like to purchase the stock of Farflung Corp. The company plans to pay a dividend of $3.58 next year and projects that the dividend will grow to $3.89 per share the following year, and to $3.95 the year after that. Frieda plans to be able to sell the stock at the end of that year for $112 per share.
She uses the Capital Asset Pricing model to calculate her required rate of return. The present annual Rate of Return on a 10-year U.S. Treasury Notes is 3.6%, the Beta of the company is 1.32 and the expected annual Rate of Return on the stock market for the near future is 14.23%
What is the intrinsic value of the stock?
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