Consider that Microsoft has the following EPS projections and payout ratio expectations from 2023 to 2026...

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Consider that Microsoft has the following EPS projections and payout ratio expectations from 2023 to 2026 Dividend pay-out EPS 0 2023 Recall that the 2-stage DDM formula is: and that: = 10.50 a) Using a 2 stage DDM: what is the intrinsic value of Microsoft? 32% 1 2 3 3 (1+) (1+ ) (1+ ) +1 + ) Consider that D = dividend of year 2023 1 Consider that RFR = 3%, Microsoft's beta is 1.05 and the expected market risk premium is 7% (remember that the market risk premium is equal to (market's expected return - RFR)). The 1st stage should run from 2023 to 2025 (using the expected dividends, derived from the EPS and the dividend pay-out of each year), and the 2nd stage from 2026 onwards with a g = 8%, and a dividend pay-out of 60%. + + 2024 11.63 + 40% (1+ ) 2025 13.70 50% 2026 16.04 60% Thus, if n=2026, then n+1=2027 (therefore you should calculate the dividend for 2027 in order to calculate P for 2026) Remember that all elements (including all dividends and the final P value) have to be brought to the present through discounting (calculate its present value). In that sense, the 2023 dividend should be discounted by (1+k), the 2024 dividend discounted by (1+k)^2, etc. Please provide all calculations in your answer. You can use an Excel worksheet for your answers. Use the editor to format your answer Question 2 5 Points From your calculation of the intrinsic value of Microsoft of the prior question, if the current price is $260, what is the expected return of the stock? Use the editor to format your answer Consider that Microsoft has the following EPS projections and payout ratio expectations from 2023 to 2026 Dividend pay-out EPS 0 2023 Recall that the 2-stage DDM formula is: and that: = 10.50 a) Using a 2 stage DDM: what is the intrinsic value of Microsoft? 32% 1 2 3 3 (1+) (1+ ) (1+ ) +1 + ) Consider that D = dividend of year 2023 1 Consider that RFR = 3%, Microsoft's beta is 1.05 and the expected market risk premium is 7% (remember that the market risk premium is equal to (market's expected return - RFR)). The 1st stage should run from 2023 to 2025 (using the expected dividends, derived from the EPS and the dividend pay-out of each year), and the 2nd stage from 2026 onwards with a g = 8%, and a dividend pay-out of 60%. + + 2024 11.63 + 40% (1+ ) 2025 13.70 50% 2026 16.04 60% Thus, if n=2026, then n+1=2027 (therefore you should calculate the dividend for 2027 in order to calculate P for 2026) Remember that all elements (including all dividends and the final P value) have to be brought to the present through discounting (calculate its present value). In that sense, the 2023 dividend should be discounted by (1+k), the 2024 dividend discounted by (1+k)^2, etc. Please provide all calculations in your answer. You can use an Excel worksheet for your answers. Use the editor to format your answer Question 2 5 Points From your calculation of the intrinsic value of Microsoft of the prior question, if the current price is $260, what is the expected return of the stock? Use the editor to format your answer

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To calculate the intrinsic value of Microsoft using a twostage Dividend Discount Model DDM we need t... View the full answer