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Find the intrinsic value of the stock of company ABC using the following data:
risk free rate = 5%
market risk premium = 8%
Expected market return = risk free rate + market risk premium
beta = 0.9
ROE = 12.5%
dividend payout ratio = 0.22
Dividends for the next 4 years are expected to be .59, .67, .76, .85. Subsequent growth will be at the computed growth rate, g.
Suggestion:
1. Find g from ROE and payout ratio
2. Find k from CAPM
3. Find price of ABC 4 years out using the constant growth DDM
4. Find intrinsic value by discounting each annual dividend by (1+k)^n where n=number of years, summing them and adding the price in step 3 discounted by (1+k)^4
Establish an estimated growth rate in earnings & dividends for British Petroleum. Note, in the dividend growth model, "g" is growth rate for earnings & dividends.
Calculate the Present Value of Growth Opportunities based on the following information: Earnings Per Share = $8.00, Required Rate of Return = 14%, Dividends Per Share = $1.50, Return on Equity = 16%.
Essence of Skunk Fragrances, Ltd., sells 8,700 units of its perfume collection each year at a price per unit of $730. All sales are on credit with terms of 2/15, net 60. The discount is taken by 80 percent of the customers.
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