How do you calculate the expected intrinsic value of the stock for Xavier Company?
Not what you're looking for?
An analyst is estimating the intrinsic value of the stock of Xavier Company. The analyst estimates that the stock will pay a dividend of $1.75 a share at the end of the year (that is, = $1.75). The dividend is expected to remain at this level until 4 years from now (that is, = = = $1.75). After this time, the dividend is expected to grow forever at a constant rate of 6% a year (that is, = $1.855). The stock has a required rate of return of 13%.
Required: What is the expected intrinsic value of the stock one year from now, just after the dividend has been paid at t = 1? (That is, what is p^1 ?) (I mean ^ on top of p)
Purchase this Solution
Solution Summary
The solution shows how to determine the expected intrinsic value of the stock one year from now, given the value of dividends and the dividend growth rate, using the dividend discount model. This solution shows step-by-step calculations and the answer and is also provided as a copy in an attached excel file.
Solution Preview
An analyst is estimating the intrinsic value of the stock of Xavier Company. The analyst estimates that the stock will pay a dividend of $1.75 a share at the end of the year (that is, = $1.75). The dividend is expected to remain at this level until 4 years from now (that is, = = = $1.75). After this time, the dividend is expected to grow forever at a constant rate of 6% a year (that is, = $1.855). The stock has a required rate of ...
Purchase this Solution
Free BrainMass Quizzes
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Introduction to Finance
This quiz test introductory finance topics.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.