Computation of intrinsic value

Reference no: EM1358312

Joy Medical Company is a little-known producer of heart pacemakers. The earnings and dividend growth prospects of the company are disputed by analysts.

Jimmy is forecasting 5% growth in dividends indefinitely. However, Susan is predicting a 20% growth in dividends, but only for the next three years, after which the growth rate is expected to decline to 4% for the indefinite future.

Joy's dividends per share are currently $3, i.e. D0 = $3. Stocks with similar risk are currently priced to provide a 14% expected return.

(a) What is the intrinsic value of Chief stock according to Jimmy?
(b) What is the intrinsic value of Chief stock according to Susan?
(c) Assume that Joy's stock now sells for $39.75 per share. If the stock is fairly priced at the present time, what is the implied perpetual dividend growth rate g ? What is the implied P/E (Price-Earnings ratio) on next year's earnings, based on this perpetual dividend growth assumption and assuming a 25% dividend payout ratio?

Reference no: EM1358312

Questions Cloud

Personality disorders and personality traits : How do personality disorders differ from personality traits? Are the criteria for each PD, not traits, themselves?

The nature of morality : What do these mean and what is your personal opinion of them - The Nature of Morality

Sketch complete free body force diagrams for each crate : Sketch complete free body force diagrams for each crate. A person with his ear to the ground sees a huge stone strike the concrete pavement a moment later 2 sounds are heard from an impact one travels in the air and the other in concrete.

Purposes of performance management : How suitable would these tools be for fulfilling strategic, administrative, and developmental purposes of performance management?

Computation of intrinsic value : Joy Medical Corporation is a little-known producer of heart pacemakers. The earnings and dividend growth prospects of the Corporation are disputed by analysts.

Verify the excess burden can also be calculated : verify the excess burden can also be calculated using this formula.

Conditions for cash dividend payment : Why must preferred stock dividends be subtracted from net income in computing earnings per share? Why is common stock usually not issued at a price that is less than par value?

Formulate the ip to maximize profits : A set up cost of $10 is incurred, and if any of product 2 is produced, a setup cost of $20 is incurred. Formulate an IP to maximize profits.

Examining the personality of a person : A guy who lives alone tells everyone he is a rapper and a male model but never did either one. He gets fired from every job than spends his days and nights at the gym and night club.

User Account

All Pages