Suppose the risk-free rate is 2.61% and an analyst assumes a market risk premium of 6.65%. Firm A just paid a dividend of $1.19 per share. The analyst estimates the ẞ of Firm A to be 1.31 and estimates the dividend growth rate to be 4.79% forever. Firm A has 288.00 million shares outstanding. Firm B just paid a dividend of $1.89 per share. The analyst estimates the ẞ of Firm B to be 0.87 and believes that dividends will grow at 2.28% forever. Firm B has 196.00 million shares outstanding. What is the value of Firm B? Submit Answer format: Currency: Round to: 2 decimal places. Show Hint

Suppose the risk-free rate is 2.61% and an analyst assumes a market risk premium of 6.65%. Firm A just paid a dividend of $1.19 per share. The analyst estimates the ẞ of Firm A to be 1.31 and estimates the dividend growth rate to be 4.79% forever. Firm A has 288.00 million shares outstanding. Firm B just paid a dividend of $1.89 per share. The analyst estimates the ẞ of Firm B to be 0.87 and believes that dividends will grow at 2.28% forever. Firm B has 196.00 million shares outstanding. What is the value of Firm B? Submit Answer format: Currency: Round to: 2 decimal places. Show Hint

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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Similar questions

A firm recently paid a dividend of $2.05 per share, but analysts expect the dividend to decrease by 6% per year. The risk free rate is 1.5% and the market risk premium is 7%. If its beta is 2.25 and the market is in equilibrium what is the value of the stock? (explain your answer) $19.32 $8.82 $11.17 $8.29
Schnusenberg Corporation just paid a dividend of DO $2.10 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 2.00, the required return on the market is 14.50%, and the risk - free rate is 4.50%. What is the company's current stock price? Do not round intermediate calculations. a. $12.43 b. $11.67 c. $9.13 d. $27.96 e. $34.41 =
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 6% forever. Its stock price is $34.8 and its beta is 1. The risk-free rate is 2% and the expected return on the market portfolio is 8%. What is the best guess for the cost of equity?
Suppose the risk-free rate is 3.91% and an analyst assumes a market risk premium of 6.52%. Firm A just paid a dividend of $1.11 per share. The analyst estimates the β of Firm A to be 1.20 and estimates the dividend growth rate to be 4.27% forever. Firm A has 264.00 million shares outstanding. Firm B just paid a dividend of $1.83 per share. The analyst estimates the β of Firm B to be 0.70 and believes that dividends will grow at 2.86% forever. Firm B has 197.00 million shares outstanding. What is the value of Firm B? Answer format: Currency: Round to: 2 decimal places.
The risk-free rate is 3% per annum with continuous compounding. The price of stock LUV is $85, and its stock-price volatility is 25% per annum. LUV currently does not pay a dividend. What is the price of a 3-month at-the-money American call on LUV? A.$2.94 B.$3.67 C.$5.06 D.$4.54
A stock is selling for $80 in the market. The company’s beta is 1.5, the market risk premium (rM - rF) is 6%, and the risk-free rate is 2%. The most recent dividend paid is D0 = $2 and dividends are expected to grow at a constant rate g. What’s the dividend growth rate g for this stock? find the stock’s capital gain yield. 8.29% 4.19% 7.68% 7.81%
Assume that Company A is in stable growth. Its current earnings are expected to grow 6% a year in perpetuity, and its stock has a beta of 0.85. If the current Treasury bond rate is 4%, the current estimate of the market risk premium is 6%, and the stock is trading at a P/E ratio of 9.5, estimate Company A's return on equity. The return on equity is?
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.7%; the market risk premium, RPM, = 6.0%, and the firm's stock has a current beta, b, = 1.15. Assume that the firm's cost of debt, rd, is 11.00%. The firm uses a 3.0% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?

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