Shares of Data View are currently selling at $20 per share.

Shares of Data View are currently selling at $20 per share.

Current year earnings and dividends per share were $1.00 and $0.20, respectively.You have estimated the growth opportunities for Data View and you believe that they will be able to grow at a rate of 30% for the next 10 years. After that you estimate that their earnings growth will slow to a normal rate of 15%. You estimate their beta coefficient to be 1.75. The current risk-free rate is 4% and you estimate the appropriate market risk premium to be 8%.

 

Shares of Data View are currently selling at $20 per share.

 

1. Should you buy the stock? Compare the intrinsic value based on your estimates to the market price.

2. How much of yourintrinsic value is attributable to growth opportunities?

3. What is the PE Ratio for current and next year’s earnings based on your intrinsic value?

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