Question

In: Finance

What is the price of stock, today, if the following information is provided Your required rate...

What is the price of stock, today, if the following information is provided Your required rate of return = 18% Dividends in one year = $       2.00 The entity's sustained growth rate is 12% What would be the value of a corporation generating $150k per year in cash flow? The corporation is to valued as a perpetuity using a 12% required rate of return.

Solutions

Expert Solution

1) Current price of stock = D1/(ke-g) Where,
= 2.00/(18%-12%) D1 $       2.00
= $       33.33 Ke 18%
g 12%
2) Value of corporation = Cash flow / Required rate of return
= $           150 k / 12%
= $       1,250 k

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