Question
The Home Depot (HD) is expected to pay a dividend of $6.60. Assume that the dividend will grow by 10% for the next three years,
The Home Depot (HD) is expected to pay a dividend of $6.60. Assume that the dividend will grow by 10% for the next three years, 5% for the three years after that, and 3% for all years after those. The beta of HD is 1.05. The risk-free rate is 1.7%, and the market risk premium is 5.5%. Starting with these values, calculate a baseline intrinsic value for HD. Then, create a two-way table for different terminal growth rates and betas. Use growth rates from 0 5% in 1% increments, and betas from 0.85 to 1.25 in increments of 0.05. Where does the current market value of HD fit in your table of values?
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