# Assume that today is January 1, 2019 and that at t = 1 the company will pay the dividend per share that Value Line is forecasting for 2019.

Assume that today is January 1, 2019 and that at t = 1 the company will pay the dividend per share that Value Line is forecasting for 2019. (That is, assume that this forecasted 2019 dividend is D1, and that this is the first cash flow you receive as an investor. Assume that the 2018 dividend has already been paid.) Looking on the left-hand side of the report, note the section where they forecast annual growth rates – in particular, look at the estimated dividend growth rate from ’15 – ’17 to ’21 – ’23. Assume that this is the dividend growth rate for the four years after 2019 (2020-2023, which correspond to Years 2, 3, 4, and 5). Assume that after 2023 (after Year 5), the dividend grows at a long-run constant growth rate of 5% a year.

Given these assumptions, what is your estimate of the stock’s intrinsic value?

P=D1/(1+rs )^1 +D2/(1+r_s )^2  +D3/(1+rs )^3 +D4/(1+rs )^4 +D5/(1+rs )^5 +D6/(rs-g)

rs=9.03%

g=5%

D1 (2019)=\$2.85

D2 (2020)=\$3.21(\$2.85*12.5%)

D3 (2021)=\$3.61(\$3.21*12.5%)

D4 (2022)=\$4.06 (\$3.61*12.5%)

D5 (2023) = \$4.57 (\$4.06 * 12.5%)

D6 (2024+)=\$4.80 (\$4.57*5%)

P=\$2.85/1.093+\$3.21/1.195+\$3.61/1.306+\$4.06/1.427+\$4.57/1.560+\$4.80/0.088

Estimated intrinsic value= \$68.39

Do I have the formulas right?