Human Systems, a pharmaceutical company, is expected to experience a high rate of earnings and dividend...

 

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Human Systems, a pharmaceutical company, is expected to experience a high rate of earnings and dividend growth in the next 5 years as a result of having developed a cold remedy that reduces the effects of the common cold to an average of 2 days. We expect the rate of growth in years 1 to 3 to be 20% and in years 4 and 5 to be 10%. The rate of growth in each year thereafter is expected to be 5%, and the last dividend Human Systems paid was $4.00. Stockholders' required rate of return is 8%. Using the Discounted Dividend Model, what is the intrinsic value today of Humans Systems' stock given the expected growth in dividends? Human Systems, a pharmaceutical company, is expected to experience a high rate of earnings and dividend growth in the next 5 years as a result of having developed a cold remedy that reduces the effects of the common cold to an average of 2 days. We expect the rate of growth in years 1 to 3 to be 20% and in years 4 and 5 to be 10%. The rate of growth in each year thereafter is expected to be 5%, and the last dividend Human Systems paid was $4.00. Stockholders' required rate of return is 8%. Using the Discounted Dividend Model, what is the intrinsic value today of Humans Systems' stock given the expected growth in dividends?

Answer rating: 100% (QA)

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