Calculate the intrinsic value of origin stock

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Reference no: EM133001307

-Assume that origin Energy recent dividend was 20 cents.it is estimated that during the next two years (Year 1 and 2), the dividend will grow at an annual rate of negative 10 percent (g1=-10 percent). After that, they grow at an annual rate of negative 10per cent. after that, the growth rate will increase to a negative 5 percent for Year3(g2)and zero rates in Year 4 (g3). Starting from year 5, the growth rate (g3)will settle at 3 percent per year and continue at that rate indefinitely. Calculate the present value of the Origin shares if the required rate of return(cost of equity ) is 7 percent, WACC is 4 percent and the market value of the Origin's debt is 5.4 billion. The number of shares out standing is 1.76 billion.

-Calculate the intrinsic value of Origin stock using the following information only. Show calculation.

-If the current price of an Origin Energy stock is 4.34, make an investment recommendation for the stock. In one sentence, justify your recommendation.

Reference no: EM133001307

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