Below you see forecasted EPS for F\&H industries. The company maintains a 25% dividend
payout rate. You estimate the cost of equity to be 12%. The current stock price of the company is
$21. A. Compute the intrinsic value of the stock based on the dividend discount model, assuming
that after year 7 the company will enter a sustained growth period witl g=5% B. Is the stock
over- or undervalued? What would you recommend to a potential investor? C. What if in fact the
appropriate discount rate r was not 12% ? Pick a LOWER discout rate and explain how it would
change your estimated intrinsic value (i.e. recalculate the intrinsic stock price)? What would you
recommend then?.
Below you see forecasted EPS for F&H industries. The company maintai.pdf
1. Below you see forecasted EPS for F&H industries. The company maintains a 25% dividend
payout rate. You estimate the cost of equity to be 12%. The current stock price of the company is
$21. A. Compute the intrinsic value of the stock based on the dividend discount model, assuming
that after year 7 the company will enter a sustained growth period witl g=5% B. Is the stock
over- or undervalued? What would you recommend to a potential investor? C. What if in fact the
appropriate discount rate r was not 12% ? Pick a LOWER discout rate and explain how it would
change your estimated intrinsic value (i.e. recalculate the intrinsic stock price)? What would you
recommend then?
