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


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

b. Use CAPM to estimate the cost to equity for MPPR and compare it to the implied discount rate found in (a). Does your CAPM estimate of the discount rate imply that MPPR is over or under period?

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


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jeff jeffy answered 10 months ago
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