Crisp Cookware's common stock is expected to pay a dividend of $1.75 a share at the end of this year (D1 = $1.75); its beta is 0.70; the risk-free rate is 3.5%; and the market risk premium is 4%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $42 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest cent.
$
Expected return = risk free rate + beta * market risk premium
= 3.5% + 0.7 * 4%
= 6.3%
Price = dividend next year/(Required return - growth rate)
=>
42 = 1.75/(0.063 - g)
=>
growth rate g = 2.13%
Price in year 3 = D4/(r-g)
= 1.75 * 1.0213^3/(0.063-0.0213)
= 44.71
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