What is the expected price of the stock

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Reference no: EM133149453

Suppose Rio National Corp's earnings per share is $5.20 in 2021, on which it plans to pay dividends of $2.34 per share. Earnings are expected to grow -2%, 10% and 8% from 2022 to 2024, during which period the dividend payout ratio is expected to remain unchanged. After 2024, the earning growth rate is assumed to drop to a stable 5% and the payout ratio will increase to 60%. The risk-free rate of return is 2%, the risk premium on the market portfolio is 10%, and the stock of Rio National has a beta coefficient of 1.2.

(a). What is the expected price of the stock at the end of 2024?

(b). What is the intrinsic value of a share of Rio National stock at the end of 2021 according to the dividend discount model?

Reference no: EM133149453

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