Use the dividend growth model to calculate the intrinsic value of Smith Company’

Question

Use the dividend growth model to calculate the intrinsic value of Smith Company’s common stock in 2008

Balance Sheet (Year) 2008, 2007, 2006, 2005, 2004
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $400 $340 $299 $245 $319
Notes payable $300 $255 $224 $184 $239
Accrued expenses $600 $510 $449 $368 $478
Total Current Liabilities $1,300 $1,105 $972 $797 $1,037

Long-Term Liabilities
Long-term debt $400 $380 $370 $350 $345
Deferred taxes $250 $230 $220 $210 $205
Total Long-Term Liabilities $650 $610 $590 $560 $550

Total Liabilities $1,950 $1,715 $1,562 $1,357 $1,587

Stockholders' Equity
Common stock $100 $100 $100 $100 $100
Capital surplus $450 $420 $410 $380 $370
Retained earnings $800 $755 $700 $500 $415
Total Stockholders' Equity $1,350 $1,275 $1,210 $980 $885

Total Liabilities and Stockholders' Equity $3,300 $2,990 $2,772 $2,337 $2,472

Explanation / Answer

Intrinsic value of a company is the value of company's assets We know that assets = Total liabilities + shareholder equity Therefore total assets of Smith company = $3300 Intrinsic value of the company =$3300

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