The expected annual cash flow on a restaurant is $300,000(assume growth = 0%), and my cost of equity capital for restaurantsif 33.3% (restaurants are very risky!). What is the maximum price Iam willing to pay for that business? A stock has a current dividendof $2.00, a forecasted growth rate of 10%, a beta = 2, marketreturn = 12.4% and the risk-free rate (30 year US T-Bond YTM) = 4%.The current stock price on the NYSE is $15. What is the value ofthe stock and is the stock over- or under-valued?
