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Company is expecting to earn $6 next year. The expected ROE is 18%. The dividend payout ratio is 30%. If the market cap rate is 14%, what is the firm intrinsic value?a) $75.00b) $101.11c) $128.57d) $142.87

Respuesta :

Tundexi

Answer:

c) $128.57

Explanation:

Intrinsic value = D1 / (Market cap rate - Growth rate)

D1 = $6 * Dvidend payout ratio

D1 = 6 * 30%

D1 =1.8

Growth rate = (1 - Dividend payout ratio) * ROE

Growth rate = (1 - 30%)*18%

Growth rate = 0.70*18%

Growth rate = 0.126

Growth rate = 12.6%

intrinsic value = 1.8 / (14%-12.6%)

intrinsic value = 1.8 / 1.4%

intrinsic value = 1.8 / 0.014

intrinsic value = 128.5714285714286

intrinsic value = $128.57

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