Question

The Gordo Company's last dividend was $1.40 (Do). Its dividend growth rate is expected to be...

The Gordo Company's last dividend was $1.40 (Do). Its dividend growth rate is expected to be constant at 20% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 10%

Find horizon value. Explain

What is the best estimate of the current stock price? Explain

If the market price of Horton Co is $27.00 per share is the stock over- or undervalued? Why do you think so?

Homework Answers

Answer #1
Dividend of Year-0 1.4
Dividend of Year-1 1.40+20% 1.68
Dividend of Year-2 1.68+20% 2.02
Dividend of Year-3 2.02+6% 2.14
Horizon Value at Year-2 = Dividend of Year-3 / (Required return - Growth rate)
2.14/ (10-6)% = 53.5
Price
Year Cashflows PVF at 10% Present value
1 1.68 0.909091 1.53
2 2.02 0.826446 1.67
2 53.5 0.826446 44.21
Price today 47.41
Under-valued
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