Question: You expect ABC Industries to increase their current dividend (D(0)) by 20% for the next 3 years due to a strong cash balance and strong

You expect ABC Industries to increase their current dividend (D(0)) by 20% for the next 3 years due to a strong cash balance and strong expected earnings.

The current dividend D(0) is $3.00. If the Beta of ABC Is 1.0, the risk free rate is 2.5% and the market risk premium is 6%.

Answer the following assuming that the dividend will increase at a constant rate of 3% in years 4 and beyond.

The market price of the stock is $100.

1) What is the expected dividend yield for the stock using D(1) and the market price of the stock?

2) What is the horizon value of the stock?

3) What is the intrinsic value of the stock today?

4) Should you invest in the stock? explain why or why not

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