As an Electric Utility, Arbot Industries Is Expected to Maintain

As an electric utility, Arbot Industries is expected to maintain a constant dividend payout ratio and constant growth rate of earnings for the foreseeable future. Earnings were $4.50 per share in the recently completed fiscal year. In recent years, the dividend payout ratio has been a constant 65% and is expected to remain so. Arbot's return on equity (ROE) is expected to be 14% in future years. Assume your required return on the stock is 8.5%. Based on the constant growth model, what is Arbot's intrinsic value?

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DPS₀ = EPS₀ x dividend payout = ...

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