Question
Maxine Corp. is enjoying a surge of business prosperity in the recent few years. It just paid common dividends at $0.04 per share to its
Maxine Corp. is enjoying a surge of business prosperity in the recent few years. It just paid common dividends at $0.04 per share to its shareholders last year (D0=$0.04). It is expected that the dividends will grow at 90% per year for the next 4 years, at 40% for the following 2 years, and at a constant rate of 4% per year thereafter. Beta for Maxine Corp. common stock is estimated to be around 1.5; risk-free interest rate is approximately 8%; the market risk premium is around 9%. Calculate the intrinsic value of Maxine Corp. common stock today (i.e. at time 0).
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