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ABC Corp. has an ROE of 4% and reinvests 30% of its net income. ABC has just paid an annual dividend of $0.26. ABC stock
ABC Corp. has an ROE of 4% and reinvests 30% of its net income. ABC has just paid an annual dividend of $0.26. ABC stock has a beta of 1.1. The risk-free rate is 1.2% and the expected return on the market portfolio is 8%.
a. What is the appropriate discount rate?
b. What is the expected growth rate of dividends?
c. What is the intrinsic value (fair price) of ABC stock?
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