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DBR Inc is offering a new equity investment alternative, callable debt instruments. The investment pays shareholders...

DBR Inc is offering a new equity investment alternative, callable debt instruments. The investment pays shareholders a yearly dividend per share of 9% based upon a par value of $155. Two years from now these instruments will provide investors with a cash distribution of $70 per share. Four years from today after DBR makes the next dividend payment, the company will retire (call) the investments and the investor will receive $203 per share. If your required rate of return is 12%, what is the intrinsic value for this investment?

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Answer #1

Dividend Amount = 9% * 155

                         = $ 13.95

Intrinsic Value = [ 13.95 / 1.12 ] + [ 13.95 / 1.122 ] + [ 13.95 / 1.123 ] + [ 70 / 1.123 ] + [ 13.95 / 1.124 ] + [ 203 / 1.124 ]

                     = 12.46 + 11.12 + 9.93 + 49.83 + 8.87 + 129.01

                     = $ 221.21 Answer

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