Peanuts Inc. is a successful licensing holding company. Peanuts Inc. pays a current dividends per share of $2. The required rate of return for Peanuts Inc. is  15%.

The earnings and dividend growth prospects of the company are disputed by three analysts.

1. Charlie believes that Peanuts has no growth opportunity. That is, its dividend will remain constant forever.

2. Lucy is forecasting a ROE = 20% and a payout ratio of 60% per year forever.

3. Sally is predicting a 16% growth in dividends, but only for the next two years, after which the growth rate is expected to slow to 5% forever.

a. What is the intrinsic value of Peanuts' stock according to Charlie? Keep two decimal places and show your work.


 P0= $  according to Charlie.


b. What is the intrinsic value of Peanuts' stock according to Lucy? Keep two decimal places and show your work.

 
 P0= $  according to Lucy.

 
c. What is the intrinsic value of Peanuts' stock according to Sally? Keep two decimal places and show your work.

 
 P0= $  according to Sally.

Answer rating: 100% (QA)

aIf Peanuts dividend will remain constant forever then the intrinsic value of the stock can be calculated using the Gordon growth model P0 D r g where ... View the full answer