Question
The economy wide real risk free interest rate is 3.0%, the inflation premium is 1.5%, and the market risk premium is 8.5%. At the same
The economy wide real risk free interest rate is 3.0%, the inflation premium is 1.5%, and the market risk premium is 8.5%. At the same time, the Company's beta is 0.75, its dividend growth rate is 3.5%, and it just paid a dividend of $1.65 per share. The company anticipates a change in production plan that should affect its beta and dividend growth rate. The new beta becomes 0.70 and the growth rate becomes 4.20%. What is the likely resultant percentage change in the intrinsic value of the company's shares?
a. | 17.1% | |
b. | 20.7% | |
c. | 14.1% | |
d. | 15.5% | |
e. | 18.8% |
please show working out!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started