Current (just paid) dividend per share: $8.96 Beta: 1.4 Risk-free rate: 2% Expec

Question

• Current (just paid) dividend per share: $8.96
• Beta: 1.4
• Risk-free rate: 2%
• Expected market return: 16.5%

Explanation / Answer

Hi,

Required rate of return = 2 + 1.4*(16.5 -2) = 22.3%

Present Value = 8.96/(1+.223)^1 + 8.96/(1+.223)^2 + 8.96/(1+.223)^3 + 8.96/(1+.223)^4 + 8.96/(1+.223)^5 + 8.96/(1+.223)^6 = 28.17

Thanks

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