Question

Disney's current stock price is $113.00 per share. The average growth rate of the company's dividend has been 16.09% from 2002 through 2017. retains approximately 75.7% of its profits while paying out the remaining 24.3% in dividends. The company's stock currently trades at 16.27 times its current year earnings estimate of $6.96 per share. ■ Analysts expect the company to earn $7.36 per share in 2019 and $8.24 in 2020. ■ Disney's peers engaged in movie making trade at 19.6 times their current year earnings estimates while peers in parks and resorts trade at 19.2; media and broadcasting at 17.0 and consumer products at 19.1.

Answer 1

1)Dividend growth model

Value - d/k-g

D-dividend

K-required rate of return or rate of equity

G-growth rate

Dividend - if 100 dollar per share then dividend at the rate of 16.09 Percent equals to 16.09 dollar

R-return on equity is equals to 19.5 percent

G-R*retention ratio 19.5*75.7%- 14.76

Now keeping digits in formula

16.09/19.5-14.76 13.93 dollar intrinsic value

Answer 2

Whether you use this or not... IGNORE the first person's "answer" it is completely wrong.

You need 3 items of information for this formula D1/(r-g)

G is 16.09 (growth rate)

r is not given in this example and SHOULD have been.

Answer #1 has grossly overdone the dividend per share price.  You can find the D1 value by using the EPS from 2019 (7.36) and multiplying it by the dividend payout rate (24.3%). 

Therefore D1 is 7.36*.243=~$1.79. 

Finally, this leave us with

1.79/(?-.1609)  Fill in the ? with your expected return.  Since 16.09% is so large the expected return is PROBABLY not going to be larger than it which will mean you will have a negative intrinsic value.  This would mean that the constant growth model isn't useful in this situation.