Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume the same information for NextEra Energy as in problem 5 (except for the growth rate), and also assume that NextEra Energy is selling for

  1. Assume the same information for NextEra Energy as in problem 5 (except for the growth rate), and also assume that NextEra Energy is selling for $280.50 per share. Calculate the constant growth rate in eps and dps that must continue in the future for NEE to be priced fairly at present.

Info from problem 5:

NextEra Energy (NEE) is expected to pay a dividend of $5.60 this year (2020) according to Yahoo!Finance. Earnings and dividends per share are expected to grow at a 3.0% over the next five years and your best guess is that this growth rate will continue indefinitely. NEEs beta is 0.22, the expected return on the market is estimated at 11.0%, and the risk free rate is 3.5%. Use the CAPM to estimate the fair required return for NEE, and then value the stock using the constant growth DVM. Assuming that NextEras stock is currently selling for $280.50 per share, would you consider it to be a good buy at present? You may assume it is the beginning of the year in 2020.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance Principles And Practice

Authors: Denzil Watson, Antony Head

5th Edition

0273725343, 978-0273725343

More Books

Students also viewed these Finance questions

Question

4-8 Explain the basics of foreign and domestic competition 66

Answered: 1 week ago

Question

How can sensitivity to pain be altered?

Answered: 1 week ago

Question

=+ Is the information documented and verifiable?

Answered: 1 week ago

Question

=+ Is the information presented in an objective manner?

Answered: 1 week ago