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15 July, 15:07

Suzi owns 100 shares of AB stock. She expects to receive a $238 in dividends next year. 12) Investors expect the stock to sell for $46 a share one year from now. What is the intrinsic value of this stock if the dividend payout ratio is 40% and the discount rate is 13.5%?

A) $38.19

B) $42.63

C) $45.77

D) $40.53

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  1. 15 July, 15:23
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    B) $42.63

    Explanation:

    To determine the value of AB stock we must find the present value of the cash flow for next year:

    total cash flow for next year = $46 (selling price) + $2.38 ( = $238 / 100 shares) = $48.38

    present value = $48.38 / (1 + 13.5%) = $48.38 / 1.135 = $42.63
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