In: Finance
Crisp Cookware's common stock is expected to pay a dividend of $2.25 a share at the end of this year (D1 = $2.25); its beta is 0.70; the risk-free rate is 3.4%; and the market risk premium is 6%. The dividend is expected to grow at some constant rate g, and the stock currently sells for $39 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is )? Do not round intermediate steps. Round your answer to the nearest cent.
$
Required return=risk free rate+Beta*market risk premium
=3.4+(0.7*6)
=7.6%
Required return=(D1/Current price)+Growth rate
0.076=(2.25/39)+Growth rate
Growth rate=0.076-(2.25/39)
=0.0183076923
P3=Current price*(1+Growth rate)^3
=39*(1+0.0183076923)^3
=$41.18(Approx)