Estimate of the intrinsic value of share of the stock

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The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 25% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 20% per year.

a. What is your estimate of the intrinsic value of a share of the stock? (Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.)

b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? (Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.)

c. What do you expect its price to be one year from now? (Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places.)

d-1. What is the implied capital gain? (Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.)

d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?

Yes

No

Reference no: EM132003268

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