Question

A share of common stock has just paid a dividend of $2.50. If the expected long-run growth rate for this stock is 4%, and if investors' required rate of return is 11.5%, what is the stock’s intrinsic value? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

Intrinsic value=D1/(Required return-Growth rate)

=(2.5*1.04)/(0.115-0.04)

which is equal to

=34.67(Approx).