Stock HIG recently paid a dividend of $3.50. You expect the company to grow its earnings at 10% for the next three years and to then grow its earnings at 3% thereafter. The firm has a beta of 1.7. Assume an equity risk premium of 6% and a risk free rate of 3%.
a. Calculate the Cost of Equity
b. Calculate the intrinsic value of stock HIG using the two stage dividend discount model.