Question

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.

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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