Year 1 dividend = 3.23 (1 + 8.5%) = 3.50455
Year 2 dividend = 3.50455 (1 + 8.5%) = 3.802437
Year 3 dividend = 3.802437 (1 + 8.5%) = 4.125644
Year 4 dividend = 4.125644 (1 + 8.5%) = 4.476324
Year 5 dividend = 4.476324 (1 + 3%) = 4.610613
Required rate = Risk free rate + beta(market return - risk free rate)
Required rate = 1.5% + 2.2(7% - 1.5%)
Required rate = 1.5% + 12.1%
Required rate = 13.6%
Value at year 4 = D5 / required rate - growth rate
Value at year 4 = 4.610613 / 0.136 - 0.03
Value at year 4 = 4.610613 / 0.106
Value at year 4 = 43.4963
Intrinsic value = Present value of cash flows
Intrinsic value = 3.50455 / (1 + 0.136)^1 + 3.802437 / (1 + 0.136)^2 + 4.125644 / (1 + 0.136)^3 + 4.476324 / (1 + 0.136)^4 + 43.4963 / (1 + 0.136)^4
Intrinsic value = $37.65
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