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Calculating the intrinsic value of the given stock

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WWW Servers just paid a dividend of D0 = $1.00. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on WWW's stock is 9.00%. What is the best estimate of the stock's current intrinsic value?

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Solution describes the steps to calculate the intrinsic value of the given stock.

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Do=$1.00
D1=1.00*(1+30%)=$1.30
D2=1.30*(1+10%)=$1.43
D3=1.43*(1+5%)=$1.5015
D4=1.5015*(1+5%)=$1.576575

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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