Constant growth stock valuation model

Assignment Help Financial Management

Reference no: EM131067082

Suppose a firm’s stock beta is 1.5, the expected dividend next period is $3.5, and dividends are expected to grow two percent every period forever. If the expected return on the market is 11.5-percent and the risk free rate is 2.6-percent, calculate the stock price based on the CAPM and constant growth stock valuation model.

Reference no: EM131067082

Questions Cloud

Your portfolio would gain-lose approximately how much money : You have $250,000 invested in bond A which has a modified duration of 3 and $175,000 invested in bond B which has a modified duration of 12. If interest rates rise by 50 basis points, your portfolio would gain/lose approximately how much money?

How much money should he place today in savings account : John decided to buy a vacation home in 8 years from now and wants to have saved $91,966 for a down payment. How much money should he place today in a savings account that earns 4.47 percent per year (compounded daily) to accumulate money for his down..

Buying bond that pays interest semi-annually : Suppose that you are interested in buying a bond that pays interest semi-annually. It has an annual coupon of 6% with interest payable on June 15th and December 15th. The bond accrued interest is determined using a 30/360 day count street convention...

Present worth of the machine if its life was replicated : Machine C has an initial cost of $40,000, maintenance costs of $5,000 per year and a salvage value of $12,000 after its 3-year useful life. Assuming an interest rate of 10% per year, which of the following would be closest to the present worth of the..

Constant growth stock valuation model : Suppose a firm’s stock beta is 1.5, the expected dividend next period is $3.5, and dividends are expected to grow two percent every period forever. If the expected return on the market is 11.5-percent and the risk free rate is 2.6-percent, calculate ..

Firm expects to pay dividends : A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14 percent rate of return, how much should you be willing to pay f..

Calculate the internal rate of return : Calculate the Internal Rate of Return (IRR) for an investment in a 400-MW power plant with an expected life of 30 years. This plant costs 1200$/kW to build and has a heat rate of 9800 Btu/kWh.

Depreciated straight-line to zero over five-year tax life : Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $542551 is estimated to result in $189712 in annual pretax cost savings. The machine is depreciated straight-line to zero..

What is the highest project beta : A project is determined to have equal probability of generating $1 million annually or $500,000 annually for four years. the initial outlay is 2 million. The expected return on treasury bills is 6% and the market risk premium is 10%. what is the high..

User Account

All Pages