The Duo Growth Company just paid a dividend of $1.2 per share. The dividend is expected to grow at a rate of 24% per year for the next 3 years and then to level off to 6% per year forever. You think the appropriate market capitalization rate is 21% per year.
a. What is your estimate of the intrinsic value of a share of the stock?
b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?
c-1. What do you expect its price to be 1 year from now? What is the implied capital gain?
c-2. Is the implied capital gain consistent with your estimate of the dividend yield and the market capitalization rate?
Yes or No