Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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3. A rapidly growing firm is currently paying a dividend of $2.95. The dividend growth rate is
expected to be 8% for the next 3 years, 6% for the following 2 years, and 4% annually thereafter.
The expected return on the market is 10%, the risk-free rate is 5% and the firm's Beta is 1.20.
MULTIPLE GROWTH RATE SCENARIOS
EXERCISE 6 CHAPTER 3
a. Calculate the estimated price (intrinsic value) for a share of this firm's stock.
b. Use Goal Seek to determine what the current dividend would need to be to yield an
estimated price (intrinsic value) of $70.
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Transcribed Image Text:3. A rapidly growing firm is currently paying a dividend of $2.95. The dividend growth rate is expected to be 8% for the next 3 years, 6% for the following 2 years, and 4% annually thereafter. The expected return on the market is 10%, the risk-free rate is 5% and the firm's Beta is 1.20. MULTIPLE GROWTH RATE SCENARIOS EXERCISE 6 CHAPTER 3 a. Calculate the estimated price (intrinsic value) for a share of this firm's stock. b. Use Goal Seek to determine what the current dividend would need to be to yield an estimated price (intrinsic value) of $70.
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