Suppose ABC stock is currently trading at $46 and is expected (1) to be worth $52 at the end of one year and (2) to pay a $1 dividend

1. Assume ABC will pay the $1 dividend and is expected to grow their dividend at 5%. What is the intrinsic value of the stock? Use the constant growth dividend discount model and use same CAPM assumptions. Round to two decimal places.

2. What is the intrinsic value of ABC if there is zero expected growth? (Hint: use the same formula as the previous problem). Round to two decimal places.

Now you are analyzing two new companies, Cash Cow and Growth Prospects. Assume the required rate for each is 10.0% and that both could pay a $4 dividend in perpetuity.

3. What is the Present Value of Growth Opportunities (PVGO) of Growth Prospects?

4. To be more realistic, you decide to use a two stage dividend discount model. Imagine that Growth Prospects expect 9% growth for only the next 2 years, and then the growth will slow to a 3% rate. Assume the required rate is still 10% and that the most recent dividend was $2. What is the new intrinsic value of Growth Prospects? Round your answer to two decimal places.