Question
You are currently thinking about investing in Troy Inc. Shares are currently selling for $610 each. The most recent dividend was $4.50. The best growth
You are currently thinking about investing in Troy Inc. Shares are currently selling for $610 each. The most recent dividend was $4.50. The best growth forecasts you can find estimate the dividend will grow by 10% in each of the next 2 years, 15% in the third year, and 20% in the fourth year. After that, analysts believe the growth rate will settle on a constant growth rate of 4%. The risk free rate is 5%, the return on the market is 10% and the stock has a beta of 0.3. What do you estimate the value of the stock is today? GIven your estimate, would you buy the stock today? (Hint: think about how to get the required return needed for discounting to present value)
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