Calculate the estimated price of abc corporation

Reference no: EM13279529

ABC Corporation has a current dividend of $2. Its dividend one year from today is expected to grow at 10% over the next three years, then 3% indefinitely (year 4 on). The current risk free rate on a 10-year T-bill is 3%, and the market risk premium is 5%. ABC's current beta is estimated to be 1.2.

a. What is ABC's estimated cost of equity using the Capital Asset Pricing Model (CAPM)?
b. Calculate the estimated price of ABC Corporation.
c. How might you decide whether or not to invest in ABC Corporation?

Reference no: EM13279529

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