To determine the Intrinsic Value of a common stock, you forecast the cash distributions per share shown below for the next four years. The cash distributions are growing at a rate above the company’s long-term growth rate because the next four years are expected to be exceptionally profitable. The most recent cash flow was $1.20 for fiscal year 2022, which ended September 30 - i.e. - CD0 = $1.20]. It is the beginning of fiscal year 2023. Beyond 2026, you forecast that the cash flow will grow at a constant rate of 3.50%. You select a rate of return of 7.75% for this stock based on current interest rates and what you believe is a “reasonable” risk premium. What is the Intrinsic Value of the stock as of time zero? Round to one cent. Year 1 2 3 4 2023 2024 2025 2026 CD1 CD2 CD3 CD4 Cash Flow Distribution Forecast $1.45 $1.65 $1.90 $2.20 Intrinsic Value:
11 - To determine the Intrinsic Value of a common stock, you
|
Year |
1 |
2 |
3 |
4 |
|
|
2023 |
2024 |
2025 |
2026 |
|
|
CD1 |
CD2 |
CD3 |
CD4 |
|
Cash Flow Distribution Forecast |
$1.45 |
$1.65 |
$1.90 |
$2.20 |
Intrinsic Value:
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