Question

The risk-free rate is 3.00% and the market risk premium is 5.92%. A stock with a β of 1.52 just paid a dividend of $2.58. The dividend is expected to grow at 22.67% for three years and then grow at 4.92% forever. What is the value of the stock?

The risk-free rate is 2.34% and the market risk premium is 9.31%. A stock with a β of 1.74 just paid a dividend of $2.92. The dividend is expected to grow at 20.73% for three years and then grow at 4.11% forever. What is the value of the stock?

Answer format: Number: Round to: 2 decimal places.

Please show all work if possible. Answer both examples for a thumbs up. Thank you.

Answer 1

1) Ke Rm-RE Rf+Beta*(Rm-Rf) 0.03+1.52*(0.0592) 0.119984 12.00% Risk free return Market premium Cost of Equity 4.92% 12% Dividend Pv Factor Present Value 3.164886 0.8929 $ 2.83 3.88236566 0.7972 $ 3.10 4.76249795 0.7118 $ 3.39 4.99681285 70.5924058 0.7118 $ 50.25 59.56 2 2.58 122.67% 2.58*122.67%*122.67% 2.58*122.67%*122.67%*122.67% 4.7624*104.92% (Dn/Ke-g) TERMINAL VALUE 4.9968/(0.12-0.0492) INTRINSIC VALUE 03 Value of Stock $ 59.56

2) Ke Rm-Rf Rf+Beta*(Rm-Rf) 0.0234+1.74*(0.0931) 0.185394 18.54% Risk free return Market premium Cost of Equity Ke 2.92*120.73% 2.92*120.73%*120.73% 2.92*120.73%*120.73%*120.73% 5.1384*104.11%% (Dn/Ke-g) TERMINAL VALUE 5.34959/(0.1854-0.0411) INTRINSIC VALUE 4.11% 18.54% Dividend Pv Factor Present Value 3.525316 0.8436 $ 2.97 4.25611401 0.7532 $ 3.21 5.13840644 0.6725 $ 3.46 5.34959495 37.0742716 0.6725 $ 24.93 34.57 Value of Stock $ 34.57