HomeworkLib
Question

Suppose that the ABC Company is expected to be worth $100 per share one year from...

Suppose that the ABC Company is expected to be worth $100 per share one year from today. How much are you willing to pay for one share today if the risk-free rate is 7%, the expected rate of return of the market is 15%, and the company's beta is 1.5? Company pays annual perpetual dividend of $1 per share.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

As per CAPM required rate is:

=Rf+beta(Rm-Rf)

=7%+1.5*(15%-7%)

=19%

Intrinstic value of share = Dividend/r

=1/.19= $5.26

0 0
Add a comment
Know the answer?
Add Answer to:
Suppose that the ABC Company is expected to be worth $100 per share one year from...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 1. Suppose that the ABC company is expected to be worth $50 per share one year...

    1. Suppose that the ABC company is expected to be worth $50 per share one year from today. The company pays annual perpetual dividend of $1 per share. How much are you willing to pay for one share today if the risk-free rate is 3%, the expected rate of return on the market is 15%, and the company's beta is 1.2?

  • A company is expected to pay a dividend of $1.06 per share one year from now...

    A company is expected to pay a dividend of $1.06 per share one year from now and $1.66 in two years. You estimate the risk-free rate to be 3.3% per year and the expected market risk premium to be 5.6% per year. After year 2, you expect the dividend to grow thereafter at a constant rate of 4% per year. The beta of the stock is 1.3, and the current price to earnings ratio of the stock is 13. What...

  • A company is expected to pay a dividend of $1.34 per share one year from now...

    A company is expected to pay a dividend of $1.34 per share one year from now and $1.96 in two years. You estimate the risk-free rate to be 4.4% per year and the expected market risk premium to be 5.1% per year. After year 2, you expect the dividend to grow thereafter at a constant rate of 5% per year. The beta of the stock is 1, and the current price to earnings ratio of the stock is 16. What...

  • 9) A company that you are interested in has an ROE of 20%. Its dividend payout...

    9) A company that you are interested in has an ROE of 20%. Its dividend payout ratio is 60%. The last dividend, that was just paid, was $2.00 and the dividends are expected to grow at the same current rate indefinitely. Company's stock has a beta of 1.8, risk-free rate is 5%, and the market risk premium is 10%. a) Calculate the expected growth rate of dividends using the ROE and the retention ratio. b) Calculate investors' required rate of...

  • The Francis Company is expected to pay a dividend of D1 = $1.25 per share at...

    The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 0.85, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

  • Problem 5: A share of stock sells for $100 today. It will pay a dividend of $6 per share at the end of the year. Its bet...

    Problem 5: A share of stock sells for $100 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 0.8. What do investors expect the stock to sell for at the end of the year? The risk-free rate of interest is 4% and the expected rate of return on the market is 12%

  • 6. The Francis Company is expected to pay a dividend of D1 = $1.25 per share...

    6. The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.70, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

  • Assume the risk-free rate is 2% and the expected rate of return on the market is...

    Assume the risk-free rate is 2% and the expected rate of return on the market is 8%. a. ABC stock is now selling for $40 per share. It will pay a dividend of $2 per share at the end of the year. Its beta is 1.4. What do you expect the stock to sell for at the end of the year? b. Peter is buying a firm with an expected perpetual cash flow of $2,400 but is unsure of its...

  • 5) Pacific Corporation just paid an annual dividend of $3.00 per share on its common stock. Dividends are expected to g...

    5) Pacific Corporation just paid an annual dividend of $3.00 per share on its common stock. Dividends are expected to grow at an annual rate of 1.5% hereafter. If the risk-free rate is 2%, the MRP is 7% and Pacific's stock is one-and-a-quarter times as risky as the market on average, what is the most that you should be willing to pay for a share of this stock today? A) $53.17 B) $47.89 C) $32.43 D) $32.92

  • The price of a stock today is $800. One year from today, the price is expected...

    The price of a stock today is $800. One year from today, the price is expected to be $840 and the stock is expected to pay a dividend of $16 per share. The risk-free rate is 0.06, the expected return on the market is 0.16, and the beta of the stock is 0.6. Calculate the stock's alpha. Express your answer with two digits after the decimal point (e.g., 0.12 or -0.12).

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT