Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter
ID: 2758529 • 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 6%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.86.
Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is the intrinsic value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
$
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 6%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.86.
Explanation / Answer
a- Ke = IRF + (Rm-IRF)* beta
Ke = 6% + (12-6)*.86 = 11.16%
Market Capitalization rate = 11.16%
B- Intrinsic value of share = expected dividend/ Ke - g
Expected dividend = 4
value of a share = 4 / 11.16% - 6% = 4 /5.16% = 77.51