Question

Suppose the risk-free rate is 1.39% and an analyst assumes a market # 6 risk premium of 7.85%. Firm A just paid a dividend of $1.44 per share. unanswered The analyst estimates the B of Firm A to be 1.38 and estimates the not_submitted dividend growth rate to be 4.83% forever. Firm A has 298.00 million shares outstanding. Firm B just paid a dividend of $1.71 per share. The analyst estimates the B of Firm B to be 0.73 and believes that dividends will grow at 2.46% forever. Firm B has 189.00 million shares outstanding. What is the value of Firm B? Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Risk- free Rate [RS] = 1.22% Market Risk Premium = 6.40% B [MRP Betag = 0.13 Dividend paid by Firm B (0.] =1.71$ Growth Rate [9] = 2.46% Shares Out standing = 189 million shares STEP 1 : Compute required return [Xe] fos Firm B. Ke = Rp + [Beta x MRP] = 1.22 + [ 0.73 x 6.40] = 1.22 + 4.672 = 5.892 % STEP 2 : Compute Stock Price [P.). P = D. (1+ growth) - Ke-growth = 1.71 (1.0246) 0.05892- 0.0246 1.752066 0.03432 - $51.0509 STEP 3: Compute Value of Firm B [Ve] Ve = Po x shares outstanding = $ 51.0509 x 189000 000 Shares = $ 9648615209.77 → il 1$ 9648.62 million