Question

New Stock Ltd indicated its dividend payout policy in its latest general shareholder meeting that it will maintain a stable dividend payout ratio. Its net income is expected to enter a high growth window with the annual growth rate of 5% per annum in the next three years. You forecast that New Stock Ltd will enter a stable terminal growth stage with its net income growing at the industry growth rate of 2% per annum following the high growth window. The required rate of return of New Stock Ltd is 15% per annum.
It is now the end of fiscal year 2019. The company’s earnings per share is $1.60 and its dividend per share is $0.80. Rounded to two decimal places, what is your estimated intrinsic value per share of New Stock Ltd using the Dividend Discount Model at the end of fiscal year 2019?
Select one:
a. $2.00.
b. $4.01.
c. $6.75.
d. $13.57.
e. None of the options.

Answer 1