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Estimate of the intrinsic value of a share of the stock

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Reference no: EM132459666

Problem: The Sharp Company just paid a dividend of $2 per share. The dividend is expected to grow at a rate of 20% per year for the next three years and then to level off to 4% per year forever. The company has a beta of 3. Assume the risk-free interest rate is 3%, and the market risk premium is 7%.

1. What is your estimate of the intrinsic value of a share of the stock?

2. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?

3. 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?

Reference no: EM132459666

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