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What is the intrinsic value of stock

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Reference no: EM131109083

You are evaluating a stock for purchase. You estimate that the firm will pay the following dividends in the coming years:

Year 1: $2.00

Year 2: $2.50

Year 3: $3.00

After the third year the dividend is expected to grow at a long-term rate of 8%. Your required rate of return is 10%.

A. What is the intrinsic value of this stock?

B. Assume that the current price of the stock is $120. Should you purchase the stock? Explain.

C. If you purchase the stock at $120 and your estimates (of future dividends and prices) are correct, what is the expected rate of return on your investment?

Reference no: EM131109083

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