ABC's most recent dividend per share was $2 and you have forecasted dividend growth rates for...
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ABC's most recent dividend per share was $2 and you have forecasted dividend growth rates for the next 6 years are as follows: O gl = 30 % Og2=20 % O g3= 12 % O 84-9% 0 g5=7% 086 = 6% You have forecasted that dividends will grow at a constant perpetual growth rate of 5% per year starting in year 7. You have estimated Systematic Risk for ABC by CAPM regression which resulted in a Beta coefficient of 1.21 while the market risk premium is forecasted to be 7% and the risk-free rate is 3% . Given this information, answer the following: . a. What is the required return on equity for ABC? (10 points) b. What is the forecasted dividend per share value for year 7? (10 points) C. What is the target price, or terminal value, for ABC in Year 6? (10 points) d. What is the estimated value per share of ABC stock today? (10 points) e. If the current stock price quote for ABC is $59, would you make a BUY, SELL, or HOLD recommendation for ABC? Briefly explain why with only one sentence. (10 points) ABC's most recent dividend per share was $2 and you have forecasted dividend growth rates for the next 6 years are as follows: O gl = 30 % Og2=20 % O g3= 12 % O 84-9% 0 g5=7% 086 = 6% You have forecasted that dividends will grow at a constant perpetual growth rate of 5% per year starting in year 7. You have estimated Systematic Risk for ABC by CAPM regression which resulted in a Beta coefficient of 1.21 while the market risk premium is forecasted to be 7% and the risk-free rate is 3% . Given this information, answer the following: . a. What is the required return on equity for ABC? (10 points) b. What is the forecasted dividend per share value for year 7? (10 points) C. What is the target price, or terminal value, for ABC in Year 6? (10 points) d. What is the estimated value per share of ABC stock today? (10 points) e. If the current stock price quote for ABC is $59, would you make a BUY, SELL, or HOLD recommendation for ABC? Briefly explain why with only one sentence. (10 points)
Expert Answer:
Answer rating: 100% (QA)
a The required return on equity for ABC is calculated using the CAPM formula Required return on equity Riskfree rate Beta Market risk premium Required ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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