What should be the ipo price

Reference no: EM13262453

Company Publico is about to go public. It announces that it plans to pay $1 dividend per share in the first year of existence and $2 per share in the second year. From the third year onwards dividend are expected to grow at a rate of 10% per year. Suppose that the risk-free rate is 5%, the company's beta is equal to 2, and the expected market return is equal to 20%. What should be the IPO price (which is equal to the fundamental value of the firm) according to the two stage DDM?

Reference no: EM13262453

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