Calculate the required rate of return for snowwhite

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Reference no: EM131055225

Great Advisors requires all its equity analysts to use a two-stage DDM and the CAPM to value stocks. Anabelle, an analyst with Great Advisors, is tasked with valuing SnowWhite Inc. Using historical excess returns of SnowWhite and of the market, she estimates that SnowWhite's beta is 1.15. The current risk free rate is 4.5%, and expected market return is 14.50%. SnowWhite just paid dividends of $1.72 per share. After careful analysis, Anabelle believes that SnowWhite will be grow at the rate of 12% per year for the next three years, after which its growth will level off at 9% per year forever.

a) Calculate the required rate of return for SnowWhite (enter the rate in decimal number)

b) Estimate the intrinsic value of SnowWhite using the 2-stage DDM (round final answer to 2 decimal places)

Reference no: EM131055225

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