Bernie Inc purchased Nvidia for $54.20 per share, a total valuation of $44 billion. Prior to the acquisition, investors were anticipating a dividend of $0.375 per share in 2023 which would double to $0.75 per share in 2024, and double again to $1.50 in 2025. Thereafter, investors expected perpetual dividend growth of 5% per year.

If the investors demanded a rate of return of 9% on their investment, what was a fair value of one share of Nvidia prior to the acquisition?

Assume that Bernie Inc likewise thought they could double the dividends in both 2024 and 2025 and grow them perpetually at 5% every year thereafter forever. What must they raise the 2023 dividend to in order to justify the $54.20 share price they paid in 2022? Hint: Use Goal Seek.

Answer rating: 100% (QA)

To calculate the fair value of one share of Nvidia prior to the acquisition we can use the dividend ... View the full answer