Question

SCI just paid a dividend (D₀) of $1.92 per share, and its annual dividend is expected to grow at a constant rate (g) of 4.00% per year. If the required return (rs ) on SCI’s stock is 10.00%, then the intrinsic value of SCI’s shares is ____ per share.

Answer 1

Answer:

intrinsic value of SCI’s shares is $33.28 per share

Explanation:

given data

dividend (D₀) = $1.92 per share

constant rate (g) = 4.00% per year

required return (rs ) = 10.00%

to find out

intrinsic value of SCI’s shares

solution

we know that intrinsic value is here express as

intrinsic value = current dividend × ( 1+ growth rate ) ÷ ( required rate - growth rate )    .............................1

put here value we get

intrinsic value = $\frac{1.92*(1+0.04)}{0.10-0.04}$

intrinsic value = 33.28

so intrinsic value of SCI’s shares is $33.28 per share