Discount model to estimate the intrinsic value of the stock

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Reference no: EM131314017

An analyst proposes to use the two stage dividend discount model to estimate the intrinsic value of the stock of ABC Trading company. Forecasted dividends and the growth rate in dividend are as follow: Current dividend, Do $1.00 Growth during the high growth period 20% Constant perpetual growth from period t=2 onward Stockholders required rate of return 15% If ABC's dividend payout ratio during the constant perpetual growth period is equal to 40%, it's forecasted return on equity is closest to: A. 4.0% B. 16.6% C. 20.0% D. 25.0%

Reference no: EM131314017

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