Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer on Microsoft Excel parts a,b,c,d,e You are interested in purchasing the common stock of Azure Corporation. The firm recently paid a dividend of

please answer on Microsoft Excel parts a,b,c,d,e
image text in transcribed
You are interested in purchasing the common stock of Azure Corporation. The firm recently paid a dividend of $3 per share. It expects its earnings-and hence its dividends-to grow at a rate of 7% for the foreseeable future. Currently, similar-risk stocks have required returns of 10%. TO DO a. Given the data above, calculate the present value of this security. Use the constant-growth model (Equation 7.5 ) to find the stock value. b. One year later, your broker offers to sell you additional shares of Azure at $73. The most recent dividend paid was $3.21, and the expected growth rate for earnings remains at 7%. To determine the required rate of return, you decide to use the capital asset pricing model (CAPM). The risk-free rate, RF, is currently 5.25%; the market return, km, is 11.55%; and the stock's beta, bAzure is 1.07. Substitute the appropriate values into the CAPM (Equation 5.8 ) to determine the firm's current required return, kAzure c. Applying Equation 7.5, determine the value of the stock using the new dividend and required return from part b. d. Given your calculation in part c, would you buy the additional shares from your broker at $73 per share? Explain. e. Given your calculation in part c, would you sell your old shares for $73 ? Explain

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

Contemporary Financial Management

Authors: James R Mcguigan, R Charles Moyer, William J Kretlow

10th Edition

978-0324289114, 0324289111

More Books

Students also viewed these Finance questions

Question

A man with a briefcase was sitting in a chair. TRUE FALSE

Answered: 1 week ago