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Your boss wants you to calculate whether your fund should invest in Davis Advisers Inc., a newly listed company providing online financial advice. She has
Your boss wants you to calculate whether your fund should invest in Davis Advisers Inc., a newly listed company providing online financial advice. She has suggested that you start by calculating the intrinsic value of the company using the dividend discount model. You have spoken with the research analysts in your fund and have found that David and Judith, two senior analysts, have both provided their estimates of future growth for Davis Advisers. David believes that the company will grow rapidly as a first mover for the next two years at 0.10 per annum before new competitors will reduce their growth back to a steady 0.01 there after. Davis Advisers has just paid a $1.25 per share dividend and David believes that the cost of equity for the company is 0.11. What is Davis Advisers intrinsic value assuming David is correct
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