Question

Library Co. just paid a dividend of $2.75 per share. The analysts’ consensus is that its dividends will be increased by 4% next year. Dividends are expected to grow at the rate of 3% per year, forever, after that. For this problem, assume a market capitalization rate (k) of 10%.

- Calculate Library’s dividends per share in years 1, 2 and 3.

- Calculate the intrinsic value of a share of Library Co. today.

Answer #1

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