Question

Rocking technologies RT has just developed a sokar panel capable of generating 200% more electricity than amy solar panel currently on the market. As a result, RT is exoected to experience a 15% annual growth rate for the next 5 years. By the end of 5 years, other firms will have developed comparable technology and RT’s growth rate will slow to 5% per year indefinitely. Stockholders require a return of 6% on the stock. The most recent dividend was paid yesterday at $1.55 per share. What are the expected dividends for years 1-5? What is the intrinsic value of the stock?

Answer 1

Expected dividend for next 5 years
	Years	1	2	3	4	5	Total
	Dividend(expected)	1.7825	2.0499	2.3574	2.7110	3.1176
	PVF @ 6%	0.9434	0.8900	0.8396	0.7921	0.7473
	PV of dividend	1.6816	1.8244	1.9793	2.1473	2.3297	9.9623
Value of share at the end of year 5			=	div at yr 5 end/k-g
			=	9.9623/(0.06-0.05)
			=	9.9623/0.01
			=	996.23
PV of value today			=	996.23*PVF (6%,5 years)
			=	744.441
Value of share			=	PV of share price+PV of dividend
			=	744.441+9.9623
			=	$754.40