Question

Super Carpeting Inc. (SCI) just paid a dividend (D₀) of $2.88 per share, and its annual dividend is expected to grow at a constant rate (g) of 6.00% per year. If the required return (rs) on SCI’s stock is 15.00%, then the intrinsic value of SCI’s shares is per share

Answer 1

Answer:

Intrinsic value will be equal to $33.92

Explanation:

We have given dividend $D_0=2.88per\ share$

Growth rate = 6 5 = 0.06

So expected dividend in the next year $D_1=D_0(1+g)=2.88(1+0.06)= 3.05$

Required rate of return $R_e=15%=0.15$

We have to find the intrinsic value $p_0$

Intrinsic value will be equal to $p_0=\frac{D_1}{R_e-g}=\frac{3.05}{0.15-0.06}= 33.92$

So intrinsic value will be equal to $33.92