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Mature Conglomerate Corporation (MCC) just paid a dividend of $1.49 per share, and that dividend is...

Mature Conglomerate Corporation (MCC) just paid a dividend of $1.49 per share, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.55, the required return on the market is 12.50%, and the risk-free rate is 4.00%. What is the intrinsic value for MCC’s stock? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

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Answer #1
Price of stock D0*(1+g)/(Ke-g)
D0 is last dividend paid
g is growth rate
Ke is cost of equity
We would calculate cost of equity using CAPM formula
Ke Rf + Beta*(Rm-Rf)
Rf is risk free rate
Rm is market return
Ke 0.04+1.55*(0.1250-0.04)
Ke 0.04+(1.55*0.085)
Ke 17.1750%
Intrinsic value of stock 1.49*1.06/(0.17150-0.06)
Intrinsic value of stock $14.13
Thus, intrinsic value of stock is $14.13
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