Sandata inc. Recently paid its annual dividend of $3. Dividends have consistently grown at a rate of 3%. You estimate that the stock has a required return of 17%. What is the intrinsic value of this stock?

Question

Business

Nolan Short

20 July, 14:59

Sandata inc. Recently paid its annual dividend of $3. Dividends have consistently grown at a rate of 3%. You estimate that the stock has a required return of 17%. What is the intrinsic value of this stock?

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Answers (1)

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Jazmin Farrell · Answer 1

In order to find the intrinsic value of a stock using the dividend discount method we need to know its growth rate, its last dividend and its required return. When we know these 3 things we can use them in the formula which is

Intrinsic Value = Dividend * (1+Growth Rate) / (Required return - Growth rate)

In this case we know all three of these values which are

D = 3

G = 3%

R = 17%

We will put these values in the formula in order to find the intrinsic value of the stock

3 * (1+0.03) / (0.17-0.03) = 22.07

The intrinsic value of the stock is $22.07