Question

Urban Drapers has a sister company named Super Carpeting Inc. (SCI). SCI just paid a dividend (D 00 ) of $3.12 per share, and its annual dividend is expected to grow at a constant rate (g LL ) of 6.50% per year. If the required return (r ss ) on SCI’s stock is 16.25%, then the intrinsic value of SCI’s shares is ______ per share.

Answer 1

$33.228 per share

Step-by-step explanation:

The Dividend Valuation Model would be used to find the intrinsic value of the share which is as under:

Po = D1 / (r - g)

Here

D1 = Do * (1+g)

Do is the Dividend just paid now which is $3.12.

g = Growth rate which is 6.5%

r = required return which is 16.25%

Po = Intrinsic value of the unit share

By putting values we have:

Po = $3.12 * (1+6.5%) / (16.5% - 6.5%) = $33.228 per share