ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26%
per year for the next three years and then to level off to 5% per year forever. You think the appropriate market
capitalization rate is 21% per year.
Required:
a. What is your estimate of the intrinsic value of a share of the stock?
Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places.
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places.
c. What do you expect its price to be one year from now?
Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places.
d-1. What is the implied capital gain?
Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places.
d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?
a. Intrinsic value per share
b. Expected dividend yield
c. Expected price
%
d-1. Implied Capital Gain
%
d-2. Is this consistent with the DDM?
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Transcribed Image Text:The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 26% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 21% per year. Required: a. What is your estimate of the intrinsic value of a share of the stock? Note: Use intermediate calculations rounded to 4 decimal places. Round your answer to 2 decimal places. b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 2 decimal places. c. What do you expect its price to be one year from now? Note: Use intermediate values rounded to 4 decimal places. Round your answer to 2 decimal places. d-1. What is the implied capital gain? Note: Use intermediate values rounded to 2 decimal places. Round your answer to 4 decimal places. d-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate? a. Intrinsic value per share b. Expected dividend yield c. Expected price % d-1. Implied Capital Gain % d-2. Is this consistent with the DDM?
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