Question

JX VALUATION B D E STOCK VALUATION 2 Wenling Co. has just paid a dividend of $2 per share. An experienced analyst believes that the growth rate of Wenling's dividend 3 for the growth rate will be 2 % annually. The cost of equity is 9 % . 4 S Questions: 6 1.What is the intrinsic value today of one share of Wenling's stock? (Use dividend discount model) 7 8 2 Create a data table that shows the intrinsic value of Wenling's stock will change if the growth rate ranges between 0 % and 10 and the cost of equity ranges between 5 % and 20 % , in 1 % increments. (Note n.a. for instrinsic value when growth rate is larger than the cost of equity) % , in 1 % increments 9 10 11 12 3. Create the line chart for present values of Wenling Co common stock as more dividends are included 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Answer 1

Dividend discount model prices a šlock by the sum of its future cashflows_discounted by the required male of retuso that an invesloot demands for the guisk of owning the stock Given Dividend paid peu share = $d and Growth rate = 2% annually and Cost of equile : 9% The cost of equity is the required rate of return for an investor fout the risk of owning the slock The formula-for calculation of contrinsic value of Share using dividend discount model is as follows intrinsic value =D P K-9 where. D. - Neat year's dividend - Kz Cost of equity capital ___9. Dividend growth rate and D = D. (149) whece, Do-Current year_dividend d avachana naman kawan- kawan-ad d - mondes

. Intrinsic value. Do (149) K-9 = 2 (1+2%) 9%-27 2.04 7% $29:14 ... The intrinsic value of one share of Welling's slöck as of today = $ 89:14

24 Data table showing the intrinsic value of Wenling's slóck if the grocoth orate changes between 0% and 10% in 1% increments and the cost of equite Herges between 5% and 20% in 17 increments Cost of Equity 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 187, 1978 Growth & Rate 40 33.33 28.57 25 22:2 2018.1816-67 15:38 14:29 13:33 12.511.46.11.11 1035310 50.5 40.4 33.67 28.98 25.2522.4420-20 18.36 16-83 15.54 14.43434712-63 1.8811-22110.6 68 51 40.80 34 29.44 25.5 22.67 20.4 18.55 14 15:61 14.57 13.60 12 15 12 11:33 3% 103 68.67 51.5 412 34:33 29.4.254522-89 2016018143,417 15894.4 13:13,259 am 208 104 69.33/52/41.60 34 67 2971 26 23:11 | 20:50 18.91 14:33 16 14.80 3.87131 210 105 70 52.5/42 35/30 26.25 23:33 21 19.09 14.50 16.1515/14 67 212 106 70.67 5.3 42.4 35.3 30.29 26.5 23.56 21.2 19.27 4.676.31 15:19 214 107/71.3 53.5 42.8 35.67 30.5t og 45 2378 21.40 9.4 4.33 16:46 216/108 +2 54 43.2036 30.86 27 24 21.60 9.61 18 97 218 109 726454154316 36-3331:44 2725 24 22 2.80/1988 220110 733 5544 3667 31.43 9+5.04.14.22 4% 52. 7% 8% 10%

③ hine Chart for present values of Welling Co. Common stock a more dividends are included Dividends A 50 60 70 80 10 20 30 40 Value of common slock Wosking Dividend Intrinsic value of Common stock 2(1427.) - $29.14 94,2% 3/1+2%) , $43.7 9%-2% 4(1+27) 5 $58.28 9% -2% 5(1422) < $72.85 9% -2% The above chart is based on the assumption that Wenling. Cos dividend increases by & with other things semaining Conslänt