In: Finance
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.
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 | |||||||||