Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter
ID: 2760963 • Letter: M
Question
Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 4% per year. The risk-free rate is 6%, and the expected return on the market portfolio is 14%. The stock has a beta of 0.88.
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
$
Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter are expected to grow at the constant rate of 4% per year. The risk-free rate is 6%, and the expected return on the market portfolio is 14%. The stock has a beta of 0.88.
Explanation / Answer
Market capitalization rate = Rf + beta*(Rm-rf)
=6%+.88*(14%-6%) =13.04%
What is the intrinsic value of the stock?
D1/(ke-g)
=5*/(13.04%-4%) =55.31
What is the intrinsic value of the stock?