A company currently pays a dividend of $2.4 per share (D0 = $2.4). It is estimated that the company's dividend will grow at a rate of 22% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.5, the risk-free rate is 8%, and the market risk premium is 3%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.
Required return=risk free rate+Beta*market risk premium
=8+(1.5*3)=12.5%
D1=(2.4*1.22)=2.928
D2=(2.928*1.22)=3.57216
Value after year 2=(D2*Growth rate)/(Required return-Growth rate)
=(3.57216*1.07)/(0.125-0.07)
=69.4947491
Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period)
=2.928/1.125+3.57216/1.125^2+69.4947491/1.125^2
=$60.33(Approx).
A company currently pays a dividend of $2.4 per share (D0 = $2.4). It is estimated...
A company currently pays a dividend of $2.4 per share (D0 = $2.4). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company's stock has a beta of 1.5, the risk-free rate is 9.5%, and the market risk premium is 6%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer...
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A company currently pays a dividend of $3.5 per share (D0 = $3.5). It is estimated that the company's dividend will grow at a rate of 25% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company's stock has a beta of 0.9, the risk-free rate is 3%, and the market risk premium is 6%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer...
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