Question
3. A rapidly growing firm is currently paying a dividend of $4.00. The dividend growth rate is expected to be 8% for the next 3
3. A rapidly growing firm is currently paying a dividend of $4.00. The dividend growth rate is expected to be 8% for the next 3 years. The dividend growth rate after the first 3 years is expected to be 2% annually. The expected return on the market is 7%, the risk free rate is 3% and the firms Beta is 1.20.
a. Calculate the estimated price (intrinsic value) for a share of this firms stock.
b. What does this firms Beta indicate about the firms overall riskiness?
c. Use Goal Seek to determine what the expected return of the market would need to be to yield an estimated price (intrinsic value) of $100.
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