Question

Multistage Growth At the beginning of 2010 stock of Boatright Stores is projecting the following dividends Dividend 0.90 Year 2010 2011 2012 1.00 1.22 After this dividend growth will be steady. Value Line forecasts a retention rate of 55% and a long term ROE of 13%. The required return for Boatright is 18%. The intrinsic value of Boatright is Multiple Choice O $-5.47 $956 $9.56 o oo $-3.23 $3.23

Answer 1

B49 X ✓ fx =+B48*(1+13%*55%) А B B C PVIF @18% D Present value 45 0.90 0.76 46 D1 47 D2 48 D3 49 D4 50 Share price in 3 years 0.847 $ 0.718 $ 0.609 $ 0.72 0.74 1.00 1.22 1.31 12.05 $ 0.609 $ 7.33 | 1.31/(18%-13%*55%) 52 Current share price $ 9.56

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