Corp Inc. is expected to experience a turnaround period during which its current dividends per share of $1.80 will be reduced by 40% annually for the next two years, and then to grow at 50% annually in the following two years. Afterwards, its dividends will grow indefinitely at an annual rate that reflects a 45% dividend payout ratio and a ROE of 22%. Corp stock, which is priced at $15 today, has a beta of 1.25. The market risk premium and risk-free rate are, respectively, 12% and 3.5%.

(i) Compute the intrinsic value of the stock today

(ii) Compute the dividend yield and income component of the stock at the END of the turnaround period, assuming that the stock is fairly priced then.

Answer rating: 100% (QA)

Corp Inc Valuation and Income Analysis i Intrinsic Value of the Stock 1 Dividend Stream Year 1 180 1 ... View the full answer