Estimate dividend growth rate using regression method

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Macon Inc. paid $3.00 of dividend today; $1.50 one year ago; $3.25 two years ago; $4.50 three years ago; $4.30 four years ago; and $5.00 five years ago. The risk-free rate of return is 2% and the expected return on the market portfolio is 19%. The stock has a beta of 2.0.

(a) Estimate the dividend growth rate using the regression method. Show every detail.

(b) Projections on the growth rate of dividends after today were made in part (a). Assume that this growth rate from part (a) will sustain only for the next three years and thereafter the growth rate will be 6% per year forever. What is the intrinsic value of Macon Inc.'s common stock?

Reference no: EM133075442

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