Stock ABC has a Return on Equity of 9% and pays out 75% of its earnings in the form of a dividend to shareholders. Stock ABC recently paid a dividend of $2.00 per share and has a beta of 1.5. Assume an equity risk premium of 5.5% and a risk free rate of 3%.
a. Calculate the expected earnings growth rate.
b. Calculate the cost of equity.
c. Calculate the intrinsic value of Stock ABC using the constant growth dividend discount model.