What is the value of the start-up today

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Question - You founded a start-up company which has been successful, and is about to issue publicly-traded shares for the first time. You estimate that the correlation between the returns of your shares and the overall market is 0.4 for the foreseeable future; the standard deviation of your company's returns is fairly high, at 50% per year. The standard deviation of the market return is much lower, at 16% per year. The risk-free rate is 2% per year and the expected market risk premium is 6% per year.

The company is not expected to pay a cash dividend until 5 years from now (at end of Y5). At that time, the dividend is expected to be $4.00 per share; the dividend is expected to grow at 10% per year for 3 years. After that time, the growth rate (in Y9) will slow to 3% per year in perpetuity. Given this info, what is the value of the start-up today?

Reference no: EM132824719

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