Equity Investments Q242

242ABC Corporation will pay a dividend of $1.25 per share next year. If the required rate of return is 11.32% per year and dividends are expected to grow at a constant rate of 4% per year, the intrinsic value of ABC Corporation stock is closest to:

Option : B
Explanation : Intrinsic value via Gordon growth model = 1.25 / (0.1132 - 0.04) = $17.08

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