MPPR currently trades for $40.Earnings next year are expected to be $6. The company has a...

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MPPR currently trades for $40.Earnings next year are expectedto be $6. The company has a ROE of 10% and pays out half of itsearnings as dividends. Earnings are expected to grow at thesustainable long term growth rate. The stock has a beta of 1.5, andthe risk free rate is 4%. The market risk premium is 5%.
a. According to the Gordon Growth Model, what is the marketsimplied rate for MPPR?

b. Use CAPM to estimate the cost to equity for MPPR andcompare it to the implied discount rate found in (a). Does yourCAPM estimate of the discount rate imply that MPPR is over or underperiod?

c. Using the markets implied rate as your discount rate, findthe intrinsic value of MPPR using the Gordons growth Model anddecomposes intrinsic value into Non growth value and Present Valueof Growth Opportunities. What does your answer suggest about thecompany’s dividend policy?

FEEL FREE TO USE EXCEL BUT PLEASE SHOW THE FORMULAS

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MPPR currently trades for $40.Earnings next year are expectedto be $6. The company has a ROE of 10% and pays out half of itsearnings as dividends. Earnings are expected to grow at thesustainable long term growth rate. The stock has a beta of 1.5, andthe risk free rate is 4%. The market risk premium is 5%.a. According to the Gordon Growth Model, what is the marketsimplied rate for MPPR?b. Use CAPM to estimate the cost to equity for MPPR andcompare it to the implied discount rate found in (a). Does yourCAPM estimate of the discount rate imply that MPPR is over or underperiod?c. Using the markets implied rate as your discount rate, findthe intrinsic value of MPPR using the Gordons growth Model anddecomposes intrinsic value into Non growth value and Present Valueof Growth Opportunities. What does your answer suggest about thecompany’s dividend policy?FEEL FREE TO USE EXCEL BUT PLEASE SHOW THE FORMULAS