Homework answers / question archive / TransAmerica Inc

TransAmerica Inc

Finance

Share With

TransAmerica Inc. is expected to pay an annual dividend of $1.00 per year, one year from today.  It is estimated that during the following six years (i.e. years 2 through 7), the dividend will grow at an annual rate of 6%. After that, the growth rate will be equal to 4% per year and continue at that rate indefinitely. Calculate the intrinsic value of the TransAmerica's stock today if the required rate of return is 11.7%.

Show your calculation and formulas. Would you buy this stock? Why?