Should you buy the stock and why

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Reference no: EM131971100

You are looking to purchase some Sandy Olsson Corp. stock. You estimated that Sandy's beta is 1.3 and her tax rate is 30%. Currently the expected return on the market is 10% and the US T-bill is yielding 3%.

What is the appropriate cost of equity?

The stock is currently trading at $30 per share. Last week, the stock paid a dividend of $2.

The dividends have been growing at 10% annually for the past 5 years. You expect this growth rate is not sustainable forever.

You only expect this rate to continue for 5 years. Then the growth should taper down to 3% per year thereafter. Should you buy the stock? Why?

Reference no: EM131971100

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