1. Carma Corp. currently pays a dividend of $2.00 per share. In addition, Carma’s market beta is 2.0 when the risk free rate is 10% and the expected market risk premium is 5%. Estimate the intrinsic value of Carma Corp. using the dividend discount model assuming that the dividends will be $2.00 for the next 2 years and then will grow at a constant rate of 10%.

2. Your company announces that it pays a $2.00 dividend for 2017 and 2018, and for all year after 2018, it pays a $4.00 dividend each year. Using the dividend discount valuation model, determine the intrinsic value of your company, assuming that the risk-free rate is 6%, the market risk premium is 4%, and the company’s beta is -0.5.

Answer rating: 100% (QA)

We can answer both parts of this question using the Dividend Discount Model DDM with a twostage growth approach This model assumes that the company wi... View the full answer