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What is the intrinsic value of the stock

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Reference no: EM133114811

You're willing to buy DEF Co.'s stock.  The stock currently trades at $130. The stock recently paid a quarterly dividend of $0.78 per share. Dividends are expected to grow at the rate of 10%, 15%, 11%, 12%,13% respectively, in the next five years. After that, the dividend growth rate will stabilize and dividends are expected grow at a constant rate of 8% forever. The current market discount rate on similar stocks is 10%. What is the intrinsic value of the stock? Should you buy the stock?

Cash flow (Div./ Price)

Year

Expected Div.

PV of Div.

D0

0

 

 

D1

1

 

 

D2

2

 

 

D3

3

 

 

D4

4

 

 

D5

5

 

 

Terminal Value (year 5)

5

 

 

Reference no: EM133114811

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