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Advise your client to purchase the share

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Question - Michael Bain is one of your clients and he is interested in purchasing the ordinary shares of KGN which is currently priced, in the stock market, at $17.99. Assume that the total dividend paid by KGN in the 2020 year were paid as a lump sum (at once) today. You estimate that dividends will grow at a constant rate of 3.5% forever. Assume that today the Australian 10Y Government bond has a yield of 1.15%, the market risk premium is 4.55% and the beta of KGN is 0.72. Based on this price would you advise your client to purchase the share? Why or why not?

Reference no: EM132981470

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