Rentz RVs Inc. (RRV) is presently enjoying relatively high growth
QUESTION
Rentz RVs Inc. (RRV) is presently enjoying relatively high growth because of a surge in the demand for recreational vehicles. Management expects earnings and dividends to grow at a rate of 30% for the next 4 years, after which high gas prices will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The companyâs last dividend, D0, was $1.25. RRVâs beta is 1.20, the market risk premium is 5.75%, and the risk-free rate is 3.00%. What is the intrinsic value of RRVâs common stock?
ANSWER:
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