Question
The stock of the Delta Corporation has a beta of 1.9. The stock recently paid an annual dividend of $1.60, and dividends are expected to
The stock of the Delta Corporation has a beta of 1.9. The stock recently paid an annual dividend of $1.60, and dividends are expected to grow at a rate of 10% indefinitely. The equity premium has averaged 8% in recent years, and it is expected to remain at this level for the foreseeable future. The relevant risk-free rate is 5%. What is the maximum price you should pay for a share of the Delta Corporation, according to CAPM?
(A) $15.69
(B) $32.00
(C) $17.25
(D) none of the above
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Introduction To Corporate Finance
Authors: Laurence Booth, Sean Cleary
3rd Edition
978-1118300763, 1118300769
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