Q4B

Expert-verifiedFound in: Page 436

Book edition
9th

Author(s)
Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus

Pages
748 pages

ISBN
9780078034695

**Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of Deployment Specialists stock?**

$30.60

D = $1, D1 = $1 x 1.2, D2 = $1 x 1.22

k = 8.5%

P_{H} = $1 x 1.22 x 1.04

Intrinsic Value V_{0 }= D_{1 }/ 1 + k + D_{2 }/ (1 + k)^{2 }+……….+ D_{H} + P_{H} / (1 + k )^{H}

$ 1 x 1.2 / 1 + 0.085 + $1 x 1.22 / (1 + 0.085)^{2 }+……$1 x 1.2 x 1.04 / (0.085 – 0.04) x ( 1 + 0.085)^{2 }

= $30.60

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