Company A has been paying a $2 dividend each year to its common stockholders for the last 10 years. The company announces today stockholders will see the dividend grow by 4% three years from now. The market perceives the growth in dividends as positive and analysts believe stockholders can expect this 4% growth rate to continue each year thereafter. If the required rate of return of Stock A is 15%, what would be the intrinsic value of the stock given the growth in dividends? What is the intrinsic value of the stock if the dividend does not grow? What will be the stock price difference in 5 years with the growth vs. without the growth?

Answer rating: 100% (QA)

To determine the intrinsic value of Stock A given the growth in dividends we can use the Gordon Grow... View the full answer