Question

The risk-free rate is 2.77% and the market risk premium is 7.64%. A stock with a β of 1.28 just paid a dividend of $2.96. The dividend is expected to grow at 20.83% for five years and then grow at 4.65% forever. What is the value of the stock?

Suppose the risk-free rate is 2.40% and an analyst assumes a market risk premium of 6.68%. Firm A just paid a dividend of $1.12 per share. The analyst estimates the β of Firm A to be 1.35 and estimates the dividend growth rate to be 4.91% forever. Firm A has 264.00 million shares outstanding. Firm B just paid a dividend of $1.53 per share. The analyst estimates the β of Firm B to be 0.71 and believes that dividends will grow at 2.91% forever. Firm B has 188.00 million shares outstanding. What is the value of Firm B? (ANSWER SHOULD BE IN THE MILLIONS)

Answer 1

1)

E Required Return (1) Rf+BxRp B94 - X ✓ fc =+B93*1.0465 A B C 88 PVIF @ 12.55% 89 D1 $ 3.58 0.889 $ 90 D2 $ 4.32 0.789 $ 91 D3 $ 5.22 0.701 $ 92 D4 $ 6.31 0.623 $ 93 D5 $ 7.62 0.554 $ 94 D6 $ 7.98 95 Share price at year 5 $ 101.00 0.554 $ 96 7.98/(12.55%-4.65%) 97 D Present value 3.18 3.41 3.66 3.93 4.22 Here, Risk free rate of return (Rf) Beta of the stock (B) Market risk premium (Rp) 2.77% 1.28 7.64% 55.93 Required Return (r) 12.55% 2.77%+1.28*7.64% 98 Value of the stock today $ 74.33

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