DELL is undergoing a re-engineering of its processes and global strategy and is expected to leave its
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Question:
DELL is undergoing a re-engineering of its processes and global strategy and is expected to leave its annual dividend unchanged for next 3 years as it develops new products. Its dividend was $10 last year and will be the same in each of next 3 years. Once products are developed, earnings are expected to grow at a high rate for two years due to sales of new products. Analysts estimate that such earnings will generate a dividend growth rate of 40% in fourth and fifth year and thereafter decline to 3% per year forever. Based on above information answer following questions:
(a) Calculate INTRINSIC VALUE of DELL stock.
(b) If DELL stock were trading today at $160, Would you buy it? TECHNICALLY justify your answer.
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