Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

iCloud is a young venture company specializing in cloud computing services. As with sales, dividends are expected to grow at an annual rate of 30,

iCloud is a young venture company specializing in cloud computing services. As with sales, dividends are expected to grow at an annual rate of 30, 20 and 15 percent for the next three years respectively. Afterwards, the dividend growth rate is expected to stabilize at a constant rate of 10 percent in the foreseeable future. Last week, the company just paid an annual dividend of $0.80 per share.

iClouds stock beta coefficient is 2.0. The risk-free rate is 7 percent and the expected rate of return on the market is 16 percent.

Required:

  1. (a) What is the expected rate of return on iClouds stock based on CAPM?

  2. (b) What is the stock value three years from now?

  3. (c) What is the stock value today?

  4. (d) What are the expected dividend yield and capital gain yield today?

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

Valuation, Measuring And Managing The Value Of Companies

Authors: Tim Koller, Marc Goedhart, David Wessels

7th Edition

1119611865, 9781119611868

More Books

Students also viewed these Finance questions

Question

discuss the services marketing mix

Answered: 1 week ago

Question

=+6. What need does it fulfill?

Answered: 1 week ago

Question

=+8. How can you differentiate your product in their eyes?

Answered: 1 week ago