The ABC Company just paid a dividend of $1 per share. The dividend is expected to grow at a rate of 5% and 19% for the next two years and then to stabilize to 7% per year forever. The company's beta is 0.7, and the riskfree rate is 2%. If the consensus estimate for the market excess return is 13%, what is your estimate of the intrinsic value of a share of the stock?
Added by Karen C.
Step 1
Calculate the expected dividend for the next three years: - Year 1: $1 x 1.05 = $1.05 - Year 2: $1.05 x 1.19 = $1.25 - Year 3: $1.25 x 1.07 = $1.34 Show more…
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