Question

Based on the dividend discount model, what is the approximate intrinsic value of Glacier Energy if its expected dividend in one year is $1.20, the discount rate is 6.30%, and its long-term growth is expected to be continuous at 3.60%?

Answer 1

Using the dividend discount model, the intrinsic value of Glacier Energy is calculated to be approximately $44.44 per share when accounting for the expected dividend, discount rate, and the continuous growth rate.

Step-by-step explanation:

To calculate the approximate intrinsic value of Glacier Energy according to the dividend discount model, we would use the formula:

V_0 = D_1 / (k - g)

Where V_0 is the current intrinsic value of the stock, D_1 is the expected dividend in one year, k is the discount rate, and g is the long-term growth rate. Plugging in the values given:

V_0 = $1.20 / (0.0630 - 0.0360)

V_0 = $1.20 / 0.0270

V_0 = $44.44

Therefore, the approximate intrinsic value of Glacier Energy is $44.44 per share, assuming that dividends grow at a continuous rate of 3.60%