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McGaha Enterprises expects earnings and dividends to grow at a rate of 40% for the next...

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Finance

McGaha Enterprises expects earnings and dividends to grow at arate of 40% for the next 4 years, after the growth rate in earningsand dividends will fall to zero, i.e., g = 0. The company's lastdividend, D0, was $1.25, its beta is 1.20, the market risk premiumis 5.50%, and the risk-free rate is 3.00%. What is the currentprice of the common stock? Select the correct answer. a. $44.24 b.$44.98 c. $45.72 d. $43.50 e. $46.46

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4.3 Ratings (718 Votes)
Step1 Required Rate of Return As per Capital Asset Pricing Model CAPM the Required Rate of Return is computed by using the following equation Required Rate of Return Riskfree Rate Beta x Market risk premium 300 120 x 550 300 660 960 Step2 Dividend for the    See Answer
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McGaha Enterprises expects earnings and dividends to grow at arate of 40% for the next 4 years, after the growth rate in earningsand dividends will fall to zero, i.e., g = 0. The company's lastdividend, D0, was $1.25, its beta is 1.20, the market risk premiumis 5.50%, and the risk-free rate is 3.00%. What is the currentprice of the common stock? Select the correct answer. a. $44.24 b.$44.98 c. $45.72 d. $43.50 e. $46.46

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