Stock using the two-stage dividend discount model

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Reference no: EM131898698

You see a fast growing company that is estimated to have dividend growth of 20%, 18%, and 16% over each of the next three years (20% in year 1, 18% in year 2, 16% in year 3). The company paid a dividend of $1.28 per share over the past twelve months. Dividends are expected to grow at a constant rate of 3.0% per year beginning in year 4 to perpetuity. The risk-free rate of return is 4% and the market risk premium (expected return on the S&P 500 minus the risk-free rate of return) is 6%. The stock has a beta of 1.25 versus the S&P 500. Calculate the intrinsic value of this stock using the two-stage dividend discount model.

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Reference no: EM131898698

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