Homework Answers
Annual dividend = Value of perpetuity*Expected rate
= 40*13%
= 5.2
rate of return = Rf+Beta*Rp
13%=7%+Beta*8%
Beta= 6%/8% = 0.75
New rate of return = Rf+Beta*Rp
= 7%+ 0.75*190%*8%
= 18.4%
Market price of stock = CF/New rate
= 5.2/18.4%
= 28.26
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