The duo growth company just paid a dividend of $1 per share. the dividend is expected to grow at a rate of 25% per year for the next 3 years and then to level off to 5% per year forever. you think the appropriate market capitalization rate is 20% per year. (a) what is your estimate of the intrinsic value of a share of the stock? (b) if the market price of a share is equal to this intrinsic value, what is the expected dividend yield? (c) what do you expect its price to be 1 year from now? is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate? explain.

a) 11.17 dollar

b) dividend yield 11.19%

c) next year the sotck price will be 13.96

Explanation:

The intrinsic value is the present value of the future dividends:

first we calcualte the future divididends by multipling the recent dividends by the grow rates:

D0 = 1

D1 = D0 x (1 + 25%) = 1.25

D2 = D1 x (1 + 25%) = 1.563

D3 = D2 x (1 + 25%) = 1.954

for the future dividends which grow indefinitely at % we use the gordon model

D4 = D3 x (1 +   5%) = 2.05

grow 5%

return 20%

Then we discount each dividend to bring them at present date using the present value of lump sum formula:

Finally we just add it and get the intrincis value.

B) dividend yield: dividends / price:

1.25/11.17 = 0,11190 = 11.19%

C) the stock will grow at grow rate:

11.17 x 1.25 = 13,96

answer; /// the best answer to the above question is; the main economic goal that a society consider when deciding the best way to distribute its wealth is equity, this to ensure that all resources are equally distributed; ///(a) (economic equity)

due to the changes the federal reserve is making the unused reserves will impact the economy by them facing inflation. inflation is definfed as the increase in pricing of a good or service but the decline of the value of money used for purchasing those items. when the economy has a high inflation rate, they are subject to money loss and hurt on the economy.