Suppose the dividends for the Seger Corporation over the past six years were $3.08, $3.16, $3.25,...

Suppose the dividends for the Seger Corporation over the past six years were $3.08, $3.16, $3.25, $3.33, $3.43, and $3.48, respectively. Assume that the historical average growth rate will remain the same for 2020. Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 12.6 percent, Treasury bills yield 5.2 percent, and the projected beta of the firm is .81.

Share price:

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Expert Solution

required return=risk free rate+beta*market risk premium=5.2%+0.81*12.6%=15.4060%

Dividend growth rate=(3.48/3.08)^(1/5)-1=2.4721%

Share Price=D0*(1+g)/(r-g)=3.48*(1+2.4721%)/(15.4060%-2.4721%)=27.57118

jeff jeffy answered 2 years ago

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