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1. Polomi's common stock just paid a dividend of $1.31 per share. And the dividend is...

1. Polomi's common stock just paid a dividend of $1.31 per share. And the dividend is expected to grow at a rate of 6.00% every year. Investors require a rate of return of 12.80% on Polomi's stock.

a. Calculate the intrinsic value of Polomi's stock? (Round your answer to 2 decimal places.)

Intrinsic value            $

b. What should be the price of Polomi's stock 1 year from now if market expect its current market price reflects its intrinsic value? (Round your answer to 4 decimal places.)

Expected price            $

2. Investors require a 10% return from Sommers, Inc. The company's return on equity is 15%, and expects to have an earnings per share of $5 next year. The company ususally plowback 60% of its earnings for future growth.

What is the current value of Sommers' stock?

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Answer #1

1.

the intrinsic value of Polomi's stock

=(1.31*(1+6.00%))/(12.80%-6.00%)

=20.42

b. What should be the price of Polomi's stock 1 year from now if market expect its current market price reflects its intrinsic value

=20.42*(1+6.00%)

=21.5462

the above is answer..

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