Question

2 decimal places

Suppose the risk-free rate is 2.03% and an analyst assumes a market risk premium of 5.18%. Firm A just paid a dividend of $1.33 per share. The analyst estimates the ß of Firm A to be 1.34 and estimates the dividend growth rate to be 4.48% forever. Firm A has 278.00 million shares outstanding. Firm B just paid a dividend of $1.72 per share. The analyst estimates the ß of Firm B to be 0.71 and believes that dividends will grow at 2.20% forever. Firm B has 198.00 million shares outstanding. What is the value of Firm B?

Answer 1

Value of Firm B=Number of shares*D0*(1+g)/(rf+b*MRP-g)=198*1.72*1.022/(2.03%+0.71*5.18%-2.20%)=9922.23958 million