MindTap -C s//ng.cengage AP n (Basic) nt: Stock Valuation (Basic) tic/nb/ui/evo/
ID: 2818484 • Letter: M
Question
MindTap -C s//ng.cengage AP n (Basic) nt: Stock Valuation (Basic) tic/nb/ui/evo/index.html2de Save Check My Work (io remaining) Nonconstant Growth Valuation company currently pays a dividend of $2.4 per share (D estimated that the and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.5, the risk-free rate is of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent . s2.4). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, 7%, and the market risk premium is 4%. What is your estimateExplanation / Answer
Cost of equity = Rf + B*Rm
= 7% + 1.6*4%
= 13.4%
Estimated market price per share=
= (2.4*1.2/1.134) + (2.88*1.2/1.134^2) +
[(2.88*1.2*1.07/(0.134-0.07))/1.134^2]
= $50.16