Answer:
The stock current intrinsic value is: $39,46
Explanation:
We solve using the gordon model for dividend growth to valuate the price of the stock:
[tex]\frac{dividend_1}{return-growth} = Intrinsic \: Value[/tex]
d0 = 2.50
d1 = 2.50 x 1.03 = 2.575
[tex]\frac{2.575}{0.09-0.03} = Intrinsic \: Value[/tex]
Value: 42,91666666666667
This value is three years therefore, we need to discount:
[tex]\frac{Principal}{(1 + rate)^{time} } = PV[/tex]
Maturity $42.9167
time 3.00
rate 0.09000
[tex]\frac{42.9166666666667}{(1 + 0.09)^{3} } = PV[/tex]
33.1395
We also have to calcualtethe present value of the first, second and third year dividends
discount rate 0.09
# Cashflow Discounted
1 2.5 2.29
2 2.5 2.1
3 2.5 1.93
PV 6.32
We ad this to the PV of the infinite future dividends growing at 3%
6.32 + 33.1395 = 39,4595
