WHICH IS THE PROCEDURE?

An analyst is estimating the intrinsic value of the stock of Xavier Company. The analyst estimates that the stock will pay a dividend of $1.75 a share at the end of the year (that is, D1= $1.75). The dividend is expected to remain at this level until 4 years from now (that is, D2= D3= D4= $1.75). After this time, the dividend is expected to grow forever at a constant rate of 6% a year (that is, D5= $1.855). The stock has a required rate of return of 13%. What is the expected intrinsic value of the stock one year from now, just after the dividend has been paid at t = 1? (That is, what is P1 ?)

	a.	$27.18
	b.	$24.75
	c.	$20.93
	d.	$23.75
	e.	$22.50

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