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Problem 5 (15 marks) Victoria Companys beta is exactly 1.5, and the market risk premium is 10%, with a risk-free rate of 4%. The companys
Problem 5 (15 marks)
Victoria Companys beta is exactly 1.5, and the market risk premium is 10%, with a risk-free rate of 4%. The companys most recent dividend was $10 per share, and the dividend is expected to grow at 20% for the next three years and then grow at 4% per year indefinitely.
- What would be Victorias shares intrinsic value per share?
- What would be the dividend yield?
- If all the expectations stay the same as stated, what would the share price be a year from now? What would be your capital gain if you owned a share for the year? Show that this gain is consistent with the expected dividend yield calculated above.
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