Compute kroger intrinsic value

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You decide that historic data is not appropriate for determining a return distribution. You research and determine the following expected distribution:

Economy Probability Market Kroger

Depression .10 -20% -10%

Downturn .30 -10% -5%

Recovery .40 20% 10%

Boom .20 30% 20%

Standard Deviation 20% 10%

>Compute beta.

>Assuming a risk-free rate of 3% compute the required return on Kroger.

Kroger's stock price is $32. It just paid a dividend of 62 cents.

Compute Kroger's intrinsic value based on the information in #6 and assuming the following dividend growth: Year 1: 0%, Year 2: 20%, Years 3 and 4: 10%, Years 5 and after: constant growth of 2%.

Based on you answer would you recommend purchasing Kroger?

Based on your answer to above compute the required return on a portfolio with standard deviation of 20%. What investments (and what % of each investment) would be included in this portfolio?

Reference no: EM132491545

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