Suppose a company has a beta of 1.1. The risk-free rate is 5.6 percent, and the equity
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Suppose a company has a beta of 1.1. The risk-free rate is 5.6 percent, and the equity risk premium is 6 percent. The current dividend of \($2.00\) is expected to grow at 5 percent indefinitely. The price of the stock is \($40\) .
i. Estimate the value of the company’s stock.
ii. Determine the constant dividend growth rate that would be required to justify the market price of \($40\).
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