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Nonconstant Growth Stock Valuation Reizenstein Technologies (RT) has just developed a solar panel capable of generating 200%
Ch 08a:Selected End-of-Chapter Problems - Basic Stock Valuation OX Ds = $ b. Calculate the estimated intrinsic value of the s
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Answer #1
a.Expected Dividend = D0(1+g)^number of years
D1 1.54
D2 1.75
D3 2.00
D4 2.28
D5 2.60
Value of Stock today = 1.54/(1.11)+1.75/(1.11)^2 + 2/(1.11)^3 + 2.28/(1.11)^4 + 2.60/(1.11)^5 + 2.60(1.08)/(1.11)^5(11%-8%)
=$62.86
c.Dividend yield = Expected Dividend/Current Price
=1.54/62.86
2.45%
Capital Gains yield = 11%-2.45%
8.55%
Total return = 11%
Price at the end of 5 years = 55.55
Dividend yield = 5.05%
Capital gains yield = 5.95%
Total Return = 11%
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