Question

1. The risk-free rate is 1.86% and the market risk premium is 9.85%. A stock with a β of 1.71 just paid a dividend of $2.79. The dividend is expected to grow at 24.28% for three years and then grow at 4.36% forever. What is the value of the stock?

2. The risk-free rate is 2.20% and the market risk premium is 6.49%. A stock with a β of 1.27 just paid a dividend of $2.31. The dividend is expected to grow at 23.21% for five years and then grow at 3.63% forever. What is the value of the stock?

3. Caspian Sea Drinks needs to raise $25.00 million by issuing additional shares of stock. If the market estimates CSD will pay a dividend of $1.22 next year, which will grow at 4.27% forever and the cost of equity to be 10.33%, then how many shares of stock must CSD sell?

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -