Question

# Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that...

Facebook has gone public by issuing equity. As an analyst for a bank, you've estimated that the company will have a Beta of 1.2. You know that Facebook just gave a dividend of \$4.00 per share. You anticipate the dividend to grow at a rate of 10% per year. The risk-free rate is 2% and the average return of the market is 13%. Expected Return= \$15.20

What is the expected price TODAY of Facebook’s stock?

In two years, you anticipate Facebook to have a price of \$_______ per share.

#### Homework Answers

Answer #1
 Price after 2 year = Expected dividend in year 3/(required rate - Growth rate) Expected dividend in year 3 = 5.324 4*110%^3 Required rate = 15.20% Growth rate = 10% Price after 2 year= \$ 102.38 5.324/(15.2%-10%) Answer = \$ 102.38
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