Cope enterprise recently paid a dividend of $1.25. The company expects to grow at a rate of 20% for 2 years before dividend is expected to grow at a constant rate of 5%. The company's cost of equity is is 10%, What is the firm's intrinsic value today? Hint: In finding the value of the stock when the growth rate becomes normal you need to use the the dividend paid 1 year after normal growth. The value of the stock is the present value of all its future cash flow. That is, the cash flow is discounted at the cost of capital.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Cope enterprise recently paid a dividend of $1.25. The company expects to grow at
a rate of 20% for 2 years before dividend is expected to grow at a constant rate of 5%.
The company's cost of equity is is 10%., What is the firm's intrinsic value today?
Hint: In finding the value of the stock when the growth rate becomes normal you
need to use the the dividend paid 1 year after normal growth.
The value of the stock is the present value of all its future cash flow. That is, the cash
flow is discounted at the cost of capital.
Transcribed Image Text:Cope enterprise recently paid a dividend of $1.25. The company expects to grow at a rate of 20% for 2 years before dividend is expected to grow at a constant rate of 5%. The company's cost of equity is is 10%., What is the firm's intrinsic value today? Hint: In finding the value of the stock when the growth rate becomes normal you need to use the the dividend paid 1 year after normal growth. The value of the stock is the present value of all its future cash flow. That is, the cash flow is discounted at the cost of capital.
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