Question
2) You are given the following information for CareMed Corp.: 2020 FCFE $8,000,000 FCFE growth, 2021...
2) You are given the following information for CareMed Corp.:
2020 FCFE $8,000,000
FCFE growth, 2021 – 2024 6.6%
Constant growth in FCFE beyond 2024 5.0%
First dividend expected in year-end 2022 $2.25
Growth in dividend in 2023 and 2024 9%
Constant growth in dividend beyond 2024 8.6%
Shares outstanding 1,500,000
Beta coefficient 1.5
Risk-free rate 3.0%
Rate of return on the Market Portfolio 8.0%
a) What is the appropriate discount rate for CareMed’s stock?
b) What is the intrinsic value of CareMed’s stock as of year-end 2020 using the FCFE method?
c) What is the intrinsic value of CareMed’s stock as of year-end 2020 using the Discounted Dividend method?
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