Question

In: Finance

a) KP’s stock has a beta of 1.20. The risk free rate is 3% and the...

a) KP’s stock has a beta of 1.20. The risk free rate is 3% and the expected market risk premium E(rm)-rf is 6%. What is the required rate of return on KP stock?

b) KP just paid a dividend (D0) of $2.00. Dividends are expected to grow at 17% per year for the next 4 years, after which they will grow at 3% forever. What is KP’s current stock price per share? Note that the required return on the stock was computed in part a.

c) KP has 2,500,000 shares of stock outstanding. What is the total market value of KP’s common stock?

Expert Solution

a) CAPM

re = 0.03 + 1.20 * 0.06

re = 0.102

re = 10.2%

b) Dividend discount model

The current price of the stock = $45.67

Screenshot with formulas

c) The total market value of KP's common stock = Current stock price * Number of shares outstanding

The total market value of KP's common stock = 45.66661657 * 2,500,000

The total market value of KP's common stock = $114,166,541.43

Can you please upvote? Thank you :-)

jeff jeffy answered 1 year ago

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