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Supernormal growth model

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Reference no: EM132145577

Doolittle Co. is expected to pay a dividend of $2.3 next year. Doolittle is expected to pay 20% of its earnings as dividends and will have an ROE of 9% until the fourth year. After that, its ROE is expected to decrease to 2.7% and the dividend payout ratio will increase to 30%. Applying the cost of equity of 11.6% and the supernormal growth model, compute the intrinsic price of Doolittle.

Reference no: EM132145577

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