After 4 years, this company is expected to growth a slower but constant growth rate. To...

After 4 years, this company is expected to growth a slower but constant growth rate. To estimate its sustainable growth rate (g), we figure out that its ROE will be 0.21 and its Dividend Payout Ratio will be 0.49. This company’s CAPM beta is 0.75. Assume that risk-free rate of return (Rf) is 0.016, and the market risk premium (i.e., Rm - Rf) is 0.07. How much should be this company’s stock price today? TTAL corp has been growing at a fast growth rate. Its cash dividend in the next 4 years are expected to be: Div1 = $3.35; Div2 = $3.75; Div3 = $4.15; Div4 = $4.55.

Expert Solution

Can you please recheck the value of ROE. If ROE is 21%(as given), the Sustainable growth rate will be greater than Cost of Equity which is not possible. I had considered the ROE as 2.1% instead of 21% to arrive at stock price of $ 74.36

jeff jeffy answered 6 months ago

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