Stock Valuation

Hot Prospects Inc. has generated a very high real Return On Investment (Real ROI) of 22.3% and 20.7%.
Over the last two years, its dividends per share has increased rapidly from $5.10 to $5.84 to $6.64. As
the competition catches up over the next five years, the Hot Prospects Real ROI is expected to gradually
slow down. The long-run forecast calls for the firm’s Real ROI to match the firm’s real discount rate (Real
k), which is 9.0% per year. Hot Prospects follows a policy of retaining 50.0% of its earnings and paying
out the rest as dividends. Going forward, the inflation rate is expected to be 3.0% per year indefinitely.
What is the firm’s intrinsic value / share?

Suppose that a firm has generated a real Return On Investment (Real ROI) of 14.6% and 11.9% of the last
two year, while the inflation rate as been 3.5% and 2.4%, respectively. Over the last three years, the
firm's dividends per share have increased from $15.92 to $16.23 to $17.36. Over the next five years, the
firm's Real ROI is expected to gradually slow down. The long-run forecast calls for the firm’s Real ROI to
match the firm’s real discount rate (Real k), which is 6.2% per year. The firm follows a policy of retaining
34.0% of its earnings and paying out the rest as dividends. Going forward, the inflation rate is expected
to be 4.1% per year indefinitely. Determine the firm’s intrinsic value / share.