Solar Corp recently paid a dividend of $1 per share. It expects to have non-constant growth...
- Solar Corp recently paid a dividend of $1 per share. It expects to have non-constant growth of 25% a year for 3 years followed by a constant growth rate of 5% a year thereafter. The stock’s required rate of return is 12%.
- What is the stock’s value at the horizon date (when it begins constant growth)?
- What is the stock’s intrinsic value today?
Homework Answers
Horizon Date is at the end of Year 3,
Intrinsic Value = 1(1.25/1.12) + 1(1.25/1.12)2 + 1(1.25/1.12)3 + 1(1.25)3(1.05)/(0.12 - 0.05)(1.12)3
Intrinsic Value = $24.60
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