Deployment specialists pays a current (annual) dividend of $1 and is expected to grow at 25% for two years and then at 5% thereafter. if the required return for deployment specialists is 11.0%, what is the intrinsic value of deployment specialists stock? (do not round intermediate calculations. round your answer to 2 decimal places.) intrinsic value $

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Question:

Deployment specialists pays a current (annual) dividend of $1 and is expected to grow at 25% for two years and then at 5% thereafter. if the required return for deployment specialists is 11.0%, what is the intrinsic value of deployment specialists stock? (do not round intermediate calculations. round your answer to 2 decimal places.) intrinsic value $

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Answer:$24.587Explanation:Given:Annual dividend paid = $1Expected growth rate for  2 years = 25% = 0.25After 2 years growth rate = 5%required return for deployment specialists = 11.0%Now,At the end of year 1, Expected dividend on stock = $1 × (1 + 25% ) = $1.25At the end of year 2, Expected dividend on stock = $1.25 × (1 + 25%) = $1.5625At the end of year 2, Expected dividend on stock = $1.5625  × (1 + 5% )= $1.640625and,Value of stock at the end of Year 2 = [tex]\frac{\textup{Expected dividend on stock at end of Year 3}}{\textup{(Required return - Dividend growth rate)}}[/tex]= [tex]\frac{\textup{1.640625 }}{\textup{(0.11 - 0.05)}}[/tex]= $ 27.34375 Therefore,The Intrinsic value of stock = [tex]\frac{1.25}{(1+0.11)}+\frac{1.5625 + 27.34375}{(1+0.11)^2}[/tex]= 1.1261 + 23.4610= $24.587

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