Suzi owns 100 shares of AB stock. She expects to receive a $238 in dividends next year. 12) Investors expect the stock to sell for $46 a share one year from now. What is the intrinsic value of this stock if the dividend payout ratio is 40% and the discount rate is 13.5%?

A) $38.19

B) $42.63

C) $45.77

D) $40.53

Question

Business

Makenna Fields

26 February, 01:33

Suzi owns 100 shares of AB stock. She expects to receive a $238 in dividends next year. 12) Investors expect the stock to sell for $46 a share one year from now. What is the intrinsic value of this stock if the dividend payout ratio is 40% and the discount rate is 13.5%?

A) $38.19

B) $42.63

C) $45.77

D) $40.53

+2

Answers (1)

Know the Answer?

Dennis Boone · Answer 1

B) $42.63

Explanation:

To determine the value of AB stock we must find the present value of the cash flow for next year:

total cash flow for next year = $46 (selling price) + $2.38 ( = $238 / 100 shares) = $48.38

present value = $48.38 / (1 + 13.5%) = $48.38 / 1.135 = $42.63