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1 April, 01:02

Suzi owns 100 shares of AB stock. She expects to receive a $238 in dividends next year. She also expects 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%

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  1. 1 April, 01:07
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    Answer: $42.63

    Explanation:

    To calculate this we will add the present value of Future cash flows (dividends) to the present value of the stock.

    Dividend per share one year from now is,

    = 238/100

    = $2.38

    Stock Price a year from now = $46

    Discount rate is $13.5%

    PV of sum = 2.38 / (1+0.135) + 46 / (1 + 0.135)

    = 42.6255506608

    = 42.63

    $42.63 is the Intrinsic value of the stock.

    If you need any clarification do react or comment.
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