Explore BrainMass

Explore BrainMass

    2-stage Dividend Discount Model

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Using 2-stage DDM and CAPM to value stocks:

    Beta of company: 1.15
    Market price: $30
    Intrinsic value: ?
    Risk-free rate 4.50%
    Expected market return: 14.5%

    EPS and dividend growth rates for first 3 years: 12% per year
    EPS and dividend growth rates thereafter: 9% per year

    Estimate the intrinsic value oif the company using the data and the 2-stage dividend discount model.

    © BrainMass Inc. brainmass.com March 6, 2023, 12:47 pm ad1c9bdddf

    Solution Preview

    Please refer to the attachment.
    <br>Start with the CAPM:
    <br>Expected rate of return of the company is
    <br>K= Rf + beta (Rm - Rf)= 4.5+1.15*(14.5-4.5)=16%
    <br>Since we are going to use the 2-stage dividend discount model, here one key information is missing: the current dividend value D0.(or even the dividend payout ratio will ...

    Solution Summary

    2-stage Dividend Discount Model is listed.