In 2017, Tuscan Motors' earnings per share is $0.80 and paid dividends per share is $0.48. The firm is expected to have earnings growth of 25% in 2018. This growth rate is expected to decline linearly over a six year period to a stable growth of 7%. Tuscan Motors' beta with respect to market portfolio = 0.85. The treasury bond rate = 6.25%. The risk premium on market portfolio = 4% (let us assume CAPM holds). Also, we assume that growth rate in the initial-growth rate phase is not constant but declines linearly over time to reach stable growth rate in steady state.
1. Estimate the intrinsic value of a share using two-stage DDM
2. How much of Tuscan Motors' intrinsic value can be attributed to extraordinary growth opportunities? how about attributed to stable growth?