Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter
ID: 2695036 • Letter: M
Question
Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 4%, and the expected return on the market portfolio is 10%. The stock has a beta of 0.68. a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market capitalization rate % ___? b. What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Intrinsic value $ ______?Explanation / Answer
a) R = 4 + 0.68*(10-4) = 8.08 % ; b) Value = 4/(0.0808 - 0.06) = $ 192.3 ;