You are considering buying common stock in Fabul Inc. The firm yesterday paid a dividend of...
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You are considering buying common stock in Fabul Inc. The firm yesterday paid a dividend of $2. You have projected that dividends will grow at a rate of 6% per year indefinitely. The firm's beta is 1.5, the risk-free rate is 3%, and the market return is 13%. (1) What is the required return of the common stock? (2) What is the intrinsic value of the common stock? (3) If the market price of this stock is $35 per share, would you buy or sell the stocks? Why? You are considering buying common stock in Fabul Inc. The firm yesterday paid a dividend of $2. You have projected that dividends will grow at a rate of 6% per year indefinitely. The firm's beta is 1.5, the risk-free rate is 3%, and the market return is 13%. (1) What is the required return of the common stock? (2) What is the intrinsic value of the common stock? (3) If the market price of this stock is $35 per share, would you buy or sell the stocks? Why?
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Answer rating: 100% (QA)
To calculate the required return intrinsic value and determine whether to buy or sell the common stock in Fabul Inc we will use the dividend discount ... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-1305632295
15th edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt
Posted Date:
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