Question

SCI just paid a dividend (D₀) of $1.92 per share, and its annual dividend is expected to grow at a constant rate (g) of 4.00% per year. If the required return (rs ) on SCI’s stock is 10.00%, then the intrinsic value of SCI’s shares is ____ per share.

Answer 1

intrinsic value of SCI’s shares is $33.28 per share

Step-by-step explanation:

given data

dividend (D₀) = $1.92 per share

constant rate (g) = 4.00% per year

required return (rs ) = 10.00%

to find out

intrinsic value of SCI’s shares

solution

we know that intrinsic value is here express as

intrinsic value = current dividend × ( 1+ growth rate ) ÷ ( required rate - growth rate ) .............................1

put here value we get

intrinsic value =
`(1.92*(1+0.04))/(0.10-0.04)`

intrinsic value = 33.28

so intrinsic value of SCI’s shares is $33.28 per share