QuickHelper

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Category > Business & Finance Posted 07 Jun 2017 My Price 13.00

Find the intrinsic value of the stock of company ABC using the following data:

Question description

 

(TCO D) Find the intrinsic value of the stock of company ABC using the following data:
risk free rate = 5%
market risk premium = 8%
Expected market return = risk free rate + market risk premium
beta = 0.9
ROE = 12.5%
dividend payout ratio = 0.22
Dividends for the next 4 years are expected to be .59, .67, .76, .85. Subsequent growth will be at the computed growth rate, g.

Suggestion: 
1. Find g from ROE and payout ratio
2. Find k from CAPM
3. Find price of ABC 4 years out using the constant growth DDM
4. Find intrinsic value by discounting each annual dividend by (1+k)^n where n=number of years, summing them and adding the price in step 3 discounted by (1+k)^4.

Answers

QuickHelper
(10)
Status NEW Posted 07 Jun 2017 02:06 PM My Price 13.00

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