Question
You're analyzing the stock of a company known for its consistent dividend payments. The company's dividends are expected to grow at a rate of 5%
You're analyzing the stock of a company known for its consistent dividend payments. The company's dividends are expected to grow at a rate of 5% per year indefinitely. If the most recent dividend per share was $2 and the required rate of return for the stock is 10%, calculate the intrinsic value of the stock using the Dividend Discount Model (DDM). Discuss the assumptions underlying the DDM and evaluate its applicability in valuing companies with varying dividend policies and growth prospects. Additionally, compare the intrinsic value obtained from the DDM to the current market price of the stock and interpret the implications for investment decisions.
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