EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 26P
Summary Introduction
To determine: Whether the stock can be purchased or not
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Your broker has recommended that you purchase stock in Alacan, Inc. She estimates that the 1-year target price is $76.00, and Alacan consistently pays an annual dividend of $17.00. Analysts estimate that the stock has a beta of 0.91. The current risk-free rate is 2.70% and the market risk premium (RM - RF) is 9.50%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Over the coming year, Ragwort’s stock price will halve to $75 from its current level of $150 or it will rise to $300. The one-year interest rate is 12%.
In a risk-neutral world, what is the probability that Ragwort stock will rise in price? (Round your answer to 2 decimal places.)
Gandha’s Pharmaceutical Corporation’s beta is 1.5. The current risk-free rate is 5.5 percent and the market risk premium is 9 percent. Gandha currently (time 0) pays a dividend of $2 per share. This dividend is expected to grow at a rate of 20 percent for the next 3 years. The current stock price is $32, and the consensus of security analysts is that this price will increase by 30 percent by the end of year 2. Under these circumstances, would you purchase this stock? What do you believe is a fair market price for the stock? Use Table II to answer the question. Round your answer to the nearest cent.
Fair Market Price: $
The stock -Select-should beshould not beItem 2 bought.
Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY