| EPS | 9.00 |
| DPS | 1.00 |
| Discount Rate | 15% |
(1) You think that company B’s EPS will be stagnant for the rest of its economic life. What is the fair price per share of company B based on its latest EPS?
| Intrinsic Value | 0.067 |
(2) Based on a constant growth of 5% of its dividend for the rest of its economic life.What is the fair price of stock B based on the Gordon dividend growth model?
| Intrinsic Value | 0.100 |
(3) You foresee that company B will turnaround soon and its EPS will be growing for the next 5 years and its dividend will grow too. You make a bold assumption that its dividend, DPS will grow at 50% for the next 5 years, and then 5% subsequently. What is the intrinsic value of stock B based on a two-stage dividend growth model?
| DPS | 1.5 | 2.25 | 3.375 | 5.0625 | 7.59375 | 79.734375 |
| PV | 1.304347826 | 1.701323251 | 2.219117284 | 2.894500806 | 3.775435834 | 34.47137066 |
| Intrinsic Value | 0.464 |
(4) You are now thinking about investing in stock B for 5 years and sell it at the end of 5 years. Assuming dividend grows for the first 5 years as question 3 above at 50% and at the end of 5 years; you are able to sell the stock at a price 10 times its earnings. What is the intrinsic value?
| 1 | 2 | 3 | 4 | 5 | |
| DPS | 1.5 | 2.25 | 3.375 | 5.0625 | 7.59375 |
| PV for DPS | 1.304347826 | 1.701323251 | 2.219117284 | 2.894500806 | 3.775435834 |
| EPS | 13.5 | 20.25 | 30.375 | 45.5625 | 68.34375 |
| Stock Price @ end of 5th year | 6.834375 | ||||
| Stock Price @ today value | 3.39789225 | ||||
| Intrinsic Value | 3.517 |
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