Question

The risk-free rate is 2.07% and the market risk premium is 9.41%. A stock with a β of 1.71 just paid a dividend of $2.53. The dividend is expected to grow at 21.60% for five years and then grow at 4.42% forever. What is the value of the stock?

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.57 million and create incremental cash flows of $599,979.00 each year for the next five years. The cost of capital is 8.18%. What is the net present value of the J-Mix 2000?

Answer 1

Question 1

cost of equity or ke

=risk free rate+beta*market risk premium

=2.07%+1.71*(9.41%)

=18.16%

What is the value of the stock

=(2.53*(1+21.60%)^1)/(1+18.16%)^1+(2.53*(1+21.60%)^2)/(1+18.16%)^2+(2.53*(1+21.60%)^3)/(1+18.16%)^3+(2.53*(1+21.60%)^4)/(1+18.16%)^4+(2.53*(1+21.60%)^5)/(1+18.16%)^5+((2.53*(1+21.60%)^5*(1+4.42%))/(18.16%-4.42%))/(1+18.16%)^5

=35.99

the above is answer..

We do only one question under Chegg policy