Question

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year....

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year. Dividends are expected to grow at the rate of 10% per year. The risk-free rate of return is 8%, and the expected return on the market portfolio is 18%. The stock of Todd Mountain Development Corporation has a beta of 0.60. Using the constant-growth DDM, the intrinsic value of the stock is _________.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

According to Capital Asset Pricing Model Required Return on the stock = Risk Free Rate + (Expected Market Retrun -Risk Free Rate) X Beta of the Stock

Given,

Risk Free Rate = 8%

Expected Market Return = 18%

Beta of the Stock = 0.60

Therefore Required Rate of Return of the Stock (Re) = 8% + (18% - 8%) x 0.60 = 14%

We have the forumla for intrinsic value of Share price = D1/(Re-G)

Where D1 = Dividend for the next year

G =Constant Growth rate

Therefore  intrinsic value of Share price = $ 3/ (0.14-0.10)

Answer intrinsic value of Stock $ 75   

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Todd Mountain Development Corporation is expected to pay a dividend of $2.50 in the upcoming year....
Todd Mountain Development Corporation is expected to pay a dividend of $2.50 in the upcoming year. Dividends are expected to grow at the rate of 7% per year. The risk-free rate of return is 3% and the expected return on the market portfolio is 12%. The stock of Todd Mountain Development Corporation has a beta of 1.5. Using the constant growth DDM, the intrinsic value of the stock is _________.
Low Cost Airline is expected to pay a dividend of $2 in the upcoming year. The...
Low Cost Airline is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Low Cost Airline shares to be $22 a year from now. The beta of the company's stock is 1.25. Based on the above information answer questions The market's required rate of return on Low Cost’s stock? What is the intrinsic value of Low...
Risk &Return Company is expected to pay a dividend of $3.50 in the coming year. Dividends...
Risk &Return Company is expected to pay a dividend of $3.50 in the coming year. Dividends are expected to grow at a rate of 10% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of $90.00. a- What is the expected rate of return of the stock?       b- What is the beta of Risk &Return's stock if the...
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend...
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend payout ratio is 80 percent. Dividends are expected to grow at a constant rate of 8 percent forever.Suppose the company's equity beta is 1.21, the market risk premius is 9%, and the risk free rate is 5%. Calculate the present value of growth opportunities.
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend...
ABC Corporation expects to pay a dividend of $2 per share next year, and the dividend payout ratio is 80 percent. Dividends are expected to grow at a constant rate of 8 percent forever.Suppose the company's equity beta is 1.21, the market risk premius is 9%, and the risk free rate is 5%. Calculate the present value of growth opportunities.
(a) What is the value of a stock expected to pay a constant $3.50 dividend each...
(a) What is the value of a stock expected to pay a constant $3.50 dividend each year forever if the market required rate of return is 18%? (b) What is the estimated value of a stock, which intends to pay the dividend of $2.50 five years from now (at the end of year 5), expects dividends to grow at 10 percent? The Beta of this stock is 1.5. The yield on a 10-year government bonds is 3% the long-term return...
3. Grizzlies Inc. expects to pay $3.00 dividend on its common stock at the end of...
3. Grizzlies Inc. expects to pay $3.00 dividend on its common stock at the end of the year. The dividend is expected to grow 25% a year for the first two years, after which the dividend is expected to grow at a constant rate of 5% a year indefinitely. The stock’s beta is 1.2, the risk-free rate of interest is 6%, and the rate of return on the market portfolio is 11%. What is the company’s current stock price?
A share of DRV, Inc., stock is expected to pay no dividend for the upcoming 3...
A share of DRV, Inc., stock is expected to pay no dividend for the upcoming 3 years. Then, end of year 4, it is expected to pay a dividend of $10. The dividend is expected to grow at a constant rate of 4% for two additional years and then stabilize at 2%.The required rate of return is 12%. Suppose a DRV stock is selling for $30 today. 1- Calculate the current expected rate of return on DRV stock 2- Will...
Schnus Corporation just paid a dividend of $5.75 per share, and that dividend is expected to...
Schnus Corporation just paid a dividend of $5.75 per share, and that dividend is expected to grow at 20 percent each year for the next two years, and at constant rate of 8.50% per year thereafter. The company’s beta is 1.50, the required return on the market is 12.50%, and the risk-free rate is 2.40%. Calculate the company’s intrinsic value. thankyou !
A business is expected to pay a dividend of $1.50 per share at the end of...
A business is expected to pay a dividend of $1.50 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.50, the market return is 15%, and the risk-free rate is 1.50%. What is the current stock price?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT