An analyst has compiled the following financial data for ABC, Inc.:
| ABC, Inc. Valuation Scenarios |
| Item |
Scenario 1 |
Scenario 2 |
Scenario 3 |
Scenario 4 |
| Year 0 Dividends per Share |
$1.50 |
$1.50 |
$1.50 |
$1.50 |
| Long-term Treasury Bond Rate |
4.0% |
4.0% |
5.0% |
5.0% |
| Expected Return on the S&P 500 |
12.0% |
12.0% |
12.0% |
12.0% |
| Beta |
1.4 |
1.4 |
1.4 |
1.4 |
|
g (growth rate in dividends) |
0.0% |
3.0% |
Years 1-3, g=12.0%
After Year 3, g=3.0% |
Year 1, g=20%
Year 2, g=18%
Year 3, g=16%
Year 4, g=9%
Year 5, g=8%
Year 6, g=7%
After Year 6, g=4% |
If year 0 dividend is $1.50 per share, the required rate of return of shareholders is 15.2%, what is the value of ABC, Inc.'s stock price using the H-Model? Assume that the growth in dividends has been 20% for the last 8 years, but is expected to decline 3% per year for the next 5 years to a stable growth rate of 5%.
A. $19.85.
B. $20.95.
C. $24.26.
|
