Question
1.) Company X is a constant-growth company that is expected to pay a dividend in one year of D1=$2.50 per share. Analysts expect the dividend
1.) Company X is a constant-growth company that is expected to pay a dividend in one year of D1=$2.50 per share. Analysts expect the dividend to grow 4% per year in perpetuity. The beta of Company X stock is 0.8. The risk-free rate is 2% and the market risk premium is 6%. The current stock price is $60 per share.
- What is the NPV of an investment in the stock of Company X?
- Draw the SML and plot Company X on it.
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
