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    Dividend discount approach

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    You want to stimate the total intrinsic value of a large gas and electricity utility company. this company has publicly trade stock and has been paying a regular divident for many years. You decide that, due to the predictability of the dividend that this company pays, you can use the dividend discount valuation approach.The company is expected to pay a dividend of $1.25 per share next year, and the dividend is expected to grow at a rate of 3 percent a year thereafter. You estimate that the appropriate rate for discounting future dividends is 12 percent. In addition, you know that the company has 46 million shares outstanding and that the market value of its debt is $350 million. What is the total value of the market?

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    Solution Preview

    The ddm suggests that the value of the stock = div/(r-g), where r = discount rate, g = growth ...

    Solution Summary

    Dividend discount approach are examined.