Since the Firm B just paid the dividend, so
Current Dividend per share of Firm B = D0 = $1.63 , Constant growth rate of dividends of Firm B = g = 2.79%
Now Using CAPM
Required rate of return of Stock of Firm B = r = Risk free rate + Beta x Market risk premium = 2.74% + 0.88 x 6.11% = 2.74% + 5.3768% = 8.1168%
Expected dividend next year = D1 = D0(1+g) = 1.63(1+2.79%) = 1.63 x 1.0279 = 1.6754
Now using constant growth rate model, we get
Price of stock of Firm B = D1 / (r - g) = 1.6754 / (8.1168% - 2.79%) = 1.6754 / 5.3268% = $31.4522
Value of Equity of Firm B = Price of stock of Firm x no of shares outstanding = $31.4522 x 182 million = 5724.3004 million
As debt of Firm is not given, we assume Value of debt of Firm B = 0
Value of Firm B = Value of equity + Value of debt = 5724.3004 + 0 = 5724.3004 million
Hence Value of Firm B = $5724.3004 million
Suppose the risk-free rate is 2.74% and an analyst assumes a market risk premium of 6.11%....
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