Question
The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 25% per year
The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 25% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 20% per year.
a. What is your estimate of the intrinsic value of a share of the stock?
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
c. What do you expect its price to be one year from now?
d-1. What is the implied capital gain?
d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started