Question
A financial analyst has been following Davis Inc., a new high-tech firm. He estimates that the current risk-free rate (r F ) is 6.25%, the
A financial analyst has been following Davis Inc., a new high-tech firm. He estimates that the current risk-free rate (rF) is 6.25%, the market risk premium (rM - rF) is 5%, and the firms beta is 1.75. The current dividend just paid (D0) is $1.00. The analyst estimates that the companys dividend will grow at a rate of 25% this year, 20% next year, and 15% the following year. After three years the dividend is expected to grow at a constant rate of 7% a year. The analyst believes that the stock is fairly priced. Whats the horizon value (terminal value) of the stock at the end of year 3 for the constant growth period?
$23.07 | ||
$23.83 | ||
$25.42 | ||
$26.85 |
Using the information from the question above, calculate the current price of the stock.
$15.62 | ||
$17.21 | ||
$18.53 | ||
$19.83 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started