If BEC's current dividend is $1.20 and its earnings are expected to grow at 6%, what is the intrinsic value of the stock?

If BEC's current dividend is $1.20 and its earnings are expected to grow at 6%, what is the intrinsic value of the stock?

• A. $20.00
• B. $25.44
• C. $24.00
• D. $10.91

Answer: (B)

To determine the intrinsic value of BEC's stock, we can utilize the Gordon Growth Model, also known as the Dividend Discount Model for a stock with constant growth. This formula estimates the present value of an infinite series of future dividends that are expected to grow at a constant rate. The formula is expressed as follows: \[ P = \frac{D_0 \times (1 + g)}{r - g} \] Where: - \( P \) = Intrinsic value of the stock - \( D_0 \) = Current dividend ($1.20 in this case) - \( g \) = Growth rate of dividends (6% or 0.06) - \( r \) = Required rate of return Using the information provided: - The expected dividend for the next year (\( D_1 \)) is calculated as \( D_0 \times (1 + g) \), which equals \( 1.20 \times (1 + 0.06) = 1.20 \times 1.06 = 1.272 \). - The intrinsic value can now be calculated, but we still need the required rate of return (\( r \)), which is typically estimated based on market

To determine the intrinsic value of BEC's stock, we can utilize the Gordon Growth Model, also known as the Dividend Discount Model for a stock with constant growth. This formula estimates the present value of an infinite series of future dividends that are expected to grow at a constant rate.

The formula is expressed as follows:

[ P = \frac{D_0 \times (1 + g)}{r - g} ]

Where:

• ( P ) = Intrinsic value of the stock

• ( D_0 ) = Current dividend ($1.20 in this case)

• ( g ) = Growth rate of dividends (6% or 0.06)

• ( r ) = Required rate of return

Using the information provided:

• The expected dividend for the next year (( D_1 )) is calculated as ( D_0 \times (1 + g) ), which equals ( 1.20 \times (1 + 0.06) = 1.20 \times 1.06 = 1.272 ).

• The intrinsic value can now be calculated, but we still need the required rate of return (( r )), which is typically estimated based on market