Dick's Co Pays an annual dividend of $6 to its preferred stock. The rate of return...

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Dicks Co Pays an annual dividend of $6 to its preferred stock. The rate of return on T-Bill is 3% and the market risk premiu

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Answer 1

Answer #1

a.

k_e = 3% + 1.25*8%

= 13%

Intrinsic Value = $6/13%

= $46.15

b.

Intrinsic Value = D₁ / (k - g)

= $3 / (14% - 8%)

= $50

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Answer 2

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