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Suppose that the ABC Company is expected to be worth $100 per share one year from...

Suppose that the ABC Company is expected to be worth $100 per share one year from today. How much are you willing to pay for one share today if the risk-free rate is 7%, the expected rate of return of the market is 15%, and the company's beta is 1.5? Company pays annual perpetual dividend of $1 per share.

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Answer #1

As per CAPM required rate is:

=Rf+beta(Rm-Rf)

=7%+1.5*(15%-7%)

=19%

Intrinstic value of share = Dividend/r

=1/.19= $5.26

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