A Company wants to pay $0.60 dividend next year and expects it to grow by 6% every year after. Assume required rate of return is 10%. Assume the Company stock is currently trading at $12. (hint: Value of stock= D1/(k-g))
a. Calculate intrinsic value using the Gordon Growth Model and conclude whether the model suggests Ivan Company stock is undervalued or overvalued.
b. What if dividends will be $0.60 next year but will increase annually by 7%, 10%, , and steadily 5% after that, what is the fair value of Ivan Company and is it undervalued or overvalued? c. If Ivan Company stock pays a dividend on $1, the investor expects to be able to sell it at $50 and the investor’s RoR is 10% and he is planning to hold it for 2 years, what is the value of Ivan Company stock today?