Reference no: EM133121819
Integrative - Risk and valuation
Giant Enterprises' stock has a required return of 13.8%. The company, which plans to pay a dividend of $2.21 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experience over 2013-2019 period, when the following dividends were paid:
Year: 2019
Dividends per Share: $2.13
Year: 2018
Dividends per Share: $2.04
Year: 2017
Dividends per Share: $1.96
Year: 2016
Dividends per Share: $1.89
Year: 2015
Dividends per Share: $1.82
Year: 2014
Dividends per Share: $1.75
Year: 2013
Dividends per Share: $1.68
a. If the risk-free rate is 5%, what is the risk premium on Giant's stock?
b. Using the constant-growth model, estimate the value of Giant's stock.
c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock
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