a) Deployment Specialist pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialist is 8.5%, what is the intrinsic value of its stock

we will apply multi stage dividend growth model = Do (1+g) / Ke-g

Do = Dividend just paid

(1+g) = Dividend for next year

Ke = Return

g = Growth in dividend

Year Year Year

0 1 2

20% 20%

Dividend 1 1.2 1.44

infinity value @4% 44.8 8*

Present value @8.5% 1 1.11111 39.64334

Value of stock=1+1.111111111 + 39.64334 = 41.75445

*Do (1+g) / Ke-g

1.44 (1+4%) / 8.5%-4%

2.016 / 4.5%

Value = 44.88