Suppose the risk-free rate is 2.10% and an analyst assumes a market risk premium of 5.90%. Firm A just paid adividend of $1.26 per share. The analyst estimates the ẞ of Firm A to be 1.23 and estimates the dividend growth rate tobe 4.57% forever. Firm A has 292.00 million shares outstanding. Firm B just paid a dividend of $1.53 per share. Theanalyst estimates the ẞ of Firm B to be 0.87 and believes that dividends will grow at 2.06% forever. Firm B has 197.00million shares outstanding. What is the value of Firm B?SubmitAnswer format: Currency: Round to: 2 decimal places.Show Hint

To find the value of Firm B, we can use the constant growth perpetuity (CGP) valuation model. This…

Answered: Suppose the risk-free rate is 2.10% and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose the risk-free rate is 3.62% and an analyst assumes a market risk premium of 6.27%. Firm A just paid a dividend of $1.04 per share. The analyst estimates the β of Firm A to be 1.33 and estimates the dividend growth rate to be 4.82% forever. Firm A has 268.00 million shares outstanding. Firm B just paid a dividend of $1.97 per share. The analyst estimates the β of Firm B to be 0.79 and believes that dividends will grow at 2.81% forever. Firm B has 185.00 million shares outstanding. What is the value of Firm A?
You know that the return of Carla Vista Cyclicals common shares is 1.6 times as sensitive to macroeconomic information as the return of the market. If the risk-free rate of return is 2.80 percent and market risk premium is 5.71 percent, what is Carla Vista Cyclicals' cost of common equity capital? (Round intermediate calculation to 5 decimal places, e.g. 1.25140 and final answer to 2 decimal places, e.g. 15.25%.) Cost of common equity capital %
The firm just paid a dividend of D0 = ₱ 0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The firm's beta is 1.15, the required return on the market is 9.50%, and the risk-free rate is 4.50%. What is the firm's current stock price? a. ₱ 7.97 b. ₱ 15.21 c. ₱ 16.79d. ₱ 5.64 e. ₱ 6.59 f. ₱ 16.65
You have assigned the following values to these three firms: Upcoming Dividend $3.15 US Bancorp Praxair Eastman Kodak 2 Price $115.50 57.10 27.45 US Bancorp required return Praxair required return Eastman Kodak required return 1.18 1.00 CAPM % % Growth 9.00% Assume that the market portfolio will earn 12.70 percent and the risk-free rate is 3.40 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) % 14.50 9.20 Beta 1.42 2.14 1.84 Constant-Growth Model % % %
6. You are given the following information for ABC Inc.: (1) The risk-free rate is 5%. (2) The rate of return on the market is 8%. (3) The expected growth rate in dividends is 4%. (4) The last dividend paid was $0.80 per share.. (5) Beta is 1.0 a) What price should ABC sell for today? b) What price should ABC sell for, if the growth rate in dividends rise to 6% and beta increases to 1.5. I
You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.00 a share at the end of the year (D1 = $2.00) and has a beta of 0.9. The risk-free rate is 3.7%, and the market risk premium is 4%. Justus currently sells for $33.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is P3) Do not round intermediate calculations. Round your answer to the nearest cent. Only typing answer Please explain step by step
You know that the return of Sandhill Cyclicals common shares is 1.2 times as sensitive to macroeconomic information as the return of the market. If the risk-free rate of return is 5.00 percent and market risk premium is 5.71 percent, what is Sandhill Cyclicals’ cost of common equity capital? - Cost of common equity capital =?%
National Home Rentals has a beta of 1.06, a stock price of $17, and recently paid an annual dividend of $.92 a share. The dividend growth rate is 2.2 percent. The market has a rate of return of 11.2 percent and a risk premium of 7.3 percent. What is the estimated cost of equity using the CAPM? What is the estimated cost of equity using the dividend discount model? Re_CAPM Re_DGM de % % do
Mackenzie Company has a price of $31 and will issue a dividend of $2.00 next year. It has a beta of 1.5, the risk-free rate is 5.4%, and the market risk premium is estimated to be 4.8%. a. Estimate the equity cost of capital for Mackenzie. b. Under the CDGM, at what rate do you need to expect Mackenzie's dividends to grow to get the same equity cost of capital as in part (a)?
The Penny Corporation's common stock has a beta of 1.8. If the risk-free rate is 6.9% and the expected return on the market is 20%, what is the company's cost of equity capital? (Do not round intermediate calculations. Enter answer as a percent rounded to 2 decimal places.)
The share price of a company is shs100. Its expected next dividend is shs3. The dividend and share price growth rate is expected to be 4% p.a. The risk-free interest rate is 5% p.a. The share has a beta of 0.8 and the expected yield on the stock market as a whole is 8% p.a. Use the Gordon Growth Model and the Security Market Line to form an opinion as to whether the share is correctly priced.
Roundall dollar answers to 2 decimal places and record all interest rate, coupon rate and growth rate answers as a percentrounded to one decimal place 50. Suppose the risk-free rate is 2.20% and analysts estimate that the market risk premium is 5.50%. Firm A justpaid a dividend of $1.80 per share. The analyst estimates the β of Firm A to be 1.22 and estimates the dividendgrowth rate to be 4.36% forever. If Firm A has 200,000 shares of common stock outstanding, what is the totalmarket value of Firm A’s equity (i.e., price per share times number of shares outstanding)? (Round youranswer up to the nearest whole number (i.e., no decimal places); for example, enter 112,304.874 or112,304.128 as 112305).

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