Miltmar Corporation will pay a year-end dividend of $5, and dividends thereafter
ID: 2761097 • 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
1)Mcap rate = risk-free rate + beta * (expected return on the market - risk-free rate)
=6+0.88*(14-6)
=13.04%
2)
Price = year end dividend/( required rate of return - growth rate)
= 5/(0.1304-0.04) = 55.31