Tech, Inc, a regional technology manufacturer plans to roll out a new product to gain market share.
This expansion is expected to capture a significant share of the market for the next three years. Afterwards, its free cash flows are expected to taper.
Tech, Inc. has just paid a cash dividend of $2.00 and is expected to increase its payout by 25% for the next three years.
Afterwards, its dividends are expected to grow at 2%, indefinitely. Tech has a required return of 15%.
a. Draw a free cash flows diagram of its dividends.
b. What is Tech's intrinsic value?
c. If the market value of Tech is $30, should it be purchased? Explain.