Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Duo Growth Company just paid a dividend of $ 1 . 0 0 per share. The dividend is expected to grow at a rate

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% 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 21% per year.
Required:
a. What is your estimate of the intrinsic value of a share of the stock?
Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places.
c. What do you expect its price to be one year from now?
Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places.
d-1. What is the implied capital gain?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.
d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?
\table[[a. Intrinsic value per share,],[b. Expected dividend yield,%
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments An Introduction

Authors: Herbert B Mayo

10th Edition

0538452099, 9780538452090

More Books

Students also viewed these Finance questions

Question

In what context did the study and teaching of communication begin?

Answered: 1 week ago