Question: Chapter 6: Practice questions II: Dividend discount model 1. DP world has forecasted the expected dividends for 3 years as follows. All values are in

Chapter 6: Practice questions II: Dividend discount model 1. DP world has forecasted the expected dividends for 3 years as follows. All values are in Dirhams. The cost of equity capital of the company is estimated at 10%. Required: What is the intrinsic value of DP Company's stocks today? (a) How much will you be willing to buy the stock today if you wish to hold the stock for one year? Suppose that the price of the stock in one year is 22 Dirhams. (b) How much will you be willing to buy the stock today if you wish to hold the stock for three years? Suppose that the price of the stock by the end of 2024 is 25 Dirhams. (c) What is the intrinsic value of DP Company's stocks today, if you assume that, the dividends will grow at a constant growth rate of 5% after the third year of the forecast horizon? (d) What is the intrinsic value of DP Company's stocks today, if the dividend in year 2024 is expected to remain constant for indefinite periods

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