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Constant-growth dividend discount method

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Reference no: EM132272019

Hewlett-Packard's (HP) expected dividends for the coming year are $0.60 and expected earnings per share are $0.80.  The required rate of return for HP is 15%.  HP's ROE is 18% and plowback ratio is 25%.  

A. Using the constant-growth dividend discount method, calculate the firm's intrinsic value.

B. Calculate the present value of growth opportunities for HP.

C. Suppose you found a positive PVGO for HP.  In this case, should the firm continue with its current dividend policy or should it instead pay out 100% of earnings as dividends?

Reference no: EM132272019

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