As per CAPM, required return = risk free rate + beta*market risk premium
= 2.39% + 0.80*7.69%
= 8.542%
Value per share = Expected Dividend/(Required return – growth rate)
= 1.95(1.0206)/(8.542%-2.06%)
= $45.83
Value of firm B = Value per share*number of shares
= 45.83*190 million
= $8,707.7 million
Suppose the risk-free rate is 2.39% and an analyst assumes a market risk premium of 7.69%....
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