Gongjin Corp's dividends are expected to rise at 15% within the first 4 years before growing at a constant rate of 2% constantly year after. The company has just paid dividends with an amount of $1. If the company's required rate of return is 13%, determine the intrinsic value of the stock!

Gongjin Corp's dividends are expected to rise at 15% within the first 4 years before growing at a constant rate of 2% constantly year after. The company has just paid dividends with an amount of $1. If the company's required rate of return is 13%, determine the intrinsic value of the stock!

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

Section: Chapter Questions

Problem 1PS

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Question

Gongjin Corp's dividends are expected to rise at 15% within the first 4 years before
growing at a constant rate of 2% constantly year after. The company has just paid dividends
with an amount of $1. If the company's required rate of return is 13%, determine the
intrinsic value of the stock!

Expert Solution

Step 1

Given information :

Growth rate for first 4 years = 15%

Constant growth rate = 2%

Current dividends = $1

Required rate of return = 13%

The intrinsic value of the stock will be the present value of all the expected dividends.

Step by step

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