Question
The expected return on market portfolio is 15% and the risk-free rate is 8%. The stock of XYZ corporation has a beta coefficient of 1.2
The expected return on market portfolio is 15% and the risk-free rate is 8%. The stock of "XYZ" corporation has a beta coefficient of 1.2 and the company pays out 40% of its earnings in dividends. "XYZ"'s latest earnings were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that the company will earn an ROE of 20% per year on all reinvested earnings forever.
a- What is the intrinsic value of a share of "XYZ" stock?
b- If the market price of a share is currently$100, and you expect the market price to be equal to the intrinsic value one year from
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
