Cavanaugh construction specializes in designing and

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Reference no: EM13570859

Cavanaugh Construction specializes in designing and building custom homes. Business has been excellent, and Cavanaugh projects a 10% growth rate for the foreseeable future. The company just paid a $3.75 dividend. Comparable stocks are returning 11%.

a)what is the intrinsic value of Cavanaugh stock?

b) Does this seem reasonable? Why or why not?

c) if Cavanaugh's growth rate is only 8.5% and comparable stocks are really returning 12%, what is Cavanaugh's intrinsic value?

d) Do these relatively small changes in assumptions justify the change in the intrinsic value? Why or why not?

Reference no: EM13570859

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