Todd Mountain Development Corporation is expected to pay a dividend of $4 in the

Todd Mountain Development Corporation is expected to pay a dividend of $4 in the upcoming year Dividends are expethn th grow at the rate of 8% per year. The risk-free rate of return is 3%, and the expected return on the market portfalie is 12%. Thit stock of Todd Mountain Development Corporation has a beta of 1.2. Using the constant-growth DDM, the intrinsic value ef the stock is _____.

Solutions

Expert Solution

Calculation of intrinsic value of the stock

Intrinsic value of the stock = D₁/(r-g)

here,

D₁ is dividend in next year = 4

g is growth rate=8%

r is required return=Risk free rate+beta*(market return-risk free rate)

= 3%+1.2*(12%-3%)

= 3%+10.8%

= 13.8%

Intrinsic value =4/(13.8%-8%)

= 4/0.058

= 68.97

Intrinsic value of the stock = $68.97

Junaid answered 1 year ago

Next > < Previous

Related Solutions

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year....

Todd Mountain Development Corporation is expected to pay a dividend of $3 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 17%. The stock of Todd Mountain Development Corporation has a beta of .75. Using the constant-growth DDM, the intrinsic value of the stock is_________.

Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow...

Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 6%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.86. a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market capitalization rate. % b. What is the intrinsic value of the stock? (Do not...

Assume ABC Corporation is expected to pay a dividend in the amount of $3 and the...

Assume ABC Corporation is expected to pay a dividend in the amount of $3 and the dividend is expected to grow at a constant rate of 5 percent. What is the expected rate if the stock is currently trading at $50 a share? What is the dividend yield? What is the capital gain rate?

Nell Corporation stock is currently selling for $18.50. The stock is expected to pay a dividend...

Nell Corporation stock is currently selling for $18.50. The stock is expected to pay a dividend of $75 at the end of the year. Dividends are expected to grow at a constant rate of 4% indefinitely. Compute the expected rate of return on Nell Corporation stock.

von bora corporation is expected pay a dividend of $2 per share at the end of...

von bora corporation is expected pay a dividend of $2 per share at the end of this year and a $2.25 per share dividend at the end of the second year. immediately after von bora pays the $2.25 per share dividend at the end pf the second year, you expect von bora stock price to be $22 per share. Von bora cost of equity capital is 10%. at the end of the second year, immediately before von bora pays the...

Variable Dividend Stock is expected to pay dividends of $2, $,2, $,3, $4, and $4 over...

Variable Dividend Stock is expected to pay dividends of $2, $,2, $,3, $4, and $4 over the next five years. After that the dividend is expected to grow at a constant rate of 4%. If the return on the stock is 9%, what is the price? Use formulas and show step by step with calculations.

An enterprise is expected to pay a dividend of $0.65 in one year. The dividend is...

An enterprise is expected to pay a dividend of $0.65 in one year. The dividend is expected to grow at a rate of 12% per year for the next five years as the firm goes through a period of rapid growth. After that, it is expected to grow at an average rate of 7% per year forever. If the required return is 22%, what is the value of a share?

Collins Corporation is expected to pay a cash dividend on its common stock of $2.20 per...

Collins Corporation is expected to pay a cash dividend on its common stock of $2.20 per share in one year, $2.45 per share in two years, and a dividend of $2.60 per share in three years. Your analysis indicaes that you think you will sell the stock for a market price of $34.50 per share in three years. The current risk-free rate is 2.20% while the appropriate rate of return for the risks involved in owning Collins corporation stock is...

Answer the dividend question below: a. A is expected to pay a dividend of $2 per...

Answer the dividend question below: a. A is expected to pay a dividend of $2 per share to its shareholders one year from today. The dividend is then expected to grow year-over-year at a constant rate of 4% (EAR) in perpetuity. The equity cost of capital for A is 8%. What is the current price per share of A? b. B is currently paying no dividends. It expects to begin paying a dividend of $3 per share to its shareholders...

A stock is expected to pay a dividend of $0.71 at the end of the year....

A stock is expected to pay a dividend of $0.71 at the end of the year. The dividend is expected to grow at a constant rate of 7.9%. The required rate of return is 12.3%. What is the stock's current price? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Subjects