The “Conniving Kangaroos” company most recent EPS is $10 per share. The company just paid 80% of its earnings in dividends. The earnings and the dividends of the company are expected to grow at a rate of 2.4% forever. The required rate of return for shareholders of Conniving Kangaroos is 8.5%.
(a). What is the intrinsic value today (V0) of a share of “Conniving Kangaroos”?

(b). If the current market price of a share of the “Conniving Kangaroos” company is $125 (i.e., P0=$125) and you expect the market price one year from now to be equal to the intrinsic value one year from now (i.e., P1=V1), what is your expected one-year holding period return on the stock?

Answer rating: 100% (QA)

a Intrinsic value today V0 of a share of Conniving Kangaroos The intrinsic value of a stock ... View the full answer