National Co., 65% owned by National Holdings Group, provides screening, diagnostic and therapeutic systems for the treatment of ophthalmologic (vision) problems. Reviewing the issue as of the beginning of October 2021, when it is trading for P19.10, Seth, a buy-side analyst covering National Co., forecast that the current dividend of P0.14 will grow by 15% per year during the next 10 years. Thereafter, Seth believes that the growth rate will decline to 8% and remain at that level indefinitely. Seth estimates National Co.’s required return on equity as 9.7%, based on a beta of 0.89, a 4.5% risk-free rate, and his equity risk premium estimate of 5.8%. What is the present value of the National Co.’s stock?

National Co., 65% owned by National Holdings Group, provides screening, diagnostic and therapeutic systems for the treatment of ophthalmologic (vision) problems. Reviewing the issue as of the beginning of October 2021, when it is trading for P19.10, Seth, a buy-side analyst covering National Co., forecast that the current dividend of P0.14 will grow by 15% per year during the next 10 years. Thereafter, Seth believes that the growth rate will decline to 8% and remain at that level indefinitely. Seth estimates National Co.’s required return on equity as 9.7%, based on a beta of 0.89, a 4.5% risk-free rate, and his equity risk premium estimate of 5.8%. What is the present value of the National Co.’s stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 22P

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