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Constant growth rate DDM

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5. The Amazing.com Corporation currently pays no cash dividends, and it is not expected to for the next 5 years. Its sales have been growing at 25% per year.

a. Can you apply the constant growth rate DDM to estimate its intrinsic value? Explain.

b. It is expected to pay its first cash dividend $1 per share 5 years from now. It its market capitalization rate is 20% and its dividends are expected to grow by 10% per year, what would you estimate its intrinsic value to be?

c. If its current market price is $100 per share, what would you infer the expected growth rate of its future dividends to be?

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Solution Summary

This posting solves the given Constant growth rate DDM problem. The constant growth rate DDM t estimate its intrinsic value is explained.

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SOLUTION:

a. Yes, we can apply the DDM model even if the company doesn't pay ...

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