Questions: Constant growth stocks Super Carpeting Inc. (SCI) just paid a dividend (D4) of 1.44 per share, and its annual dividend is expected to grow at a constant rate (g) of 3.00% per year. If the required return (r3) on SCI's stock is 7.50%, then the intrinsic value of SCI's shares is per share.

To find the intrinsic value of Super Carpeting Inc.'s (SCI) shares, we can use the Gordon Growth Model (also known as the Dividend Discount Model for a constant growth stock). The formula for the intrinsic value \( P_0 \) of a stock with constant dividend growth is:

\[ P_0 = \frac{D_1}{r - g} \]

Where:

• \( P_0 \) is the intrinsic value of the stock today.
• \( D_1 \) is the expected dividend next year.
• \( r \) is the required rate of return.
• \( g \) is the growth rate of the dividend.

Given:

• The most recent dividend \( D_0 = \$1.44 \).
• The growth rate \( g = 3.00\% = 0.03 \).
• The required return \( r = 7.50\% = 0.075 \).

First, calculate the expected dividend next year \( D_1 \):

\[ D_1 = D_0 \times (1 + g) = 1.44 \times (1 + 0.03) = 1.44 \times 1.03 = 1.4812 \]

Now, substitute \( D_1 \), \( r \), and \( g \) into the Gordon Growth Model formula:

\[ P_0 = \frac{1.4812}{0.075 - 0.03} = \frac{1.4812}{0.045} \]

\[ P_0 = 32.916 \]

Therefore, the intrinsic value of SCI's shares is approximately \$32.92 per share.