Question

Che The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 21% per year. a. What is your estimate of the intrinsic value of a share of the stock? (Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.) Intrinsic value per shareſ b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? (Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.) Expected dividend yield

Answer 1

1.
=1*(1.26/1.21)+1*(1.26/1.21)^2+1*(1.26/1.21)^3+1*(1.26/1.21)^3*1.05/(21%-5%)
=10.66

2.
=1*1.26/10.66
=11.81988743%

3.
=1*(1.26/1.21)^2*1.21+1*(1.26/1.21)^3*1.21+1*(1.26/1.21)^3*1.05/(21%-5%)*1.21
=11.64

4.
=11.64/10.66-1
=9.19%

5.
Yes