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What is the price of an ABC share

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Reference no: EM132934923

Question - ABC will pay a year-end dividend of 0.65 EUR per share i.e. it will pay this deivdend in one year. Afterwards it is expected to grow at a rate of 7 percent per annum for the indefinite future. Its discount rate is 12 percent.

a. What is the price of an ABC share?

b. What is the implicit value of growth opportunities in ABC's share price?

c. If you are not given ABC's discount rate but you observe a price in the market of 7.55 EUR, what is its discount rate?

d. Can you suggest an approach, not involving a Dividend Discount Model, to estimate the discount rate (i.e. the cost of equity) for ABC? Write down this alternative approach and describe it. State one advantage and one disadvantage of it, relative to using a Dividend Discount Model to estimate the cost of equity for a firm.

Reference no: EM132934923

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